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Cross-Border Sukuk Issues David Testa, Executive Director Head of Islamic Finance, WestLB London Sukuk Summit Royal Hor

Cross-Border Sukuk Issues David Testa, Executive Director Head of Islamic Finance, WestLB London Sukuk Summit Royal Horseguards Hotel, 21 June 2007. WestLB and Islamic Finance Expansion & Innovation Two Case Studies Stimulants for Continued Growth. USD 1,000,000,000 Ijara Syndicate

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Cross-Border Sukuk Issues David Testa, Executive Director Head of Islamic Finance, WestLB London Sukuk Summit Royal Hor

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  1. Cross-Border Sukuk IssuesDavid Testa, Executive DirectorHead of Islamic Finance, WestLBLondon Sukuk Summit Royal Horseguards Hotel, 21 June 2007

  2. WestLB and Islamic FinanceExpansion & InnovationTwo Case Studies Stimulants for Continued Growth

  3. USD 1,000,000,000 Ijara Syndicate Joint Mandated Arranger January 2006 USD 210,000,000 Sukuk Joint Mandated Arranger & Joint Bookrunner October 2005 USD 1.1bn Commodity Murabaha Facility Joint Mandated Arranger & Joint Bookrunner April 2007 £225m Commodity Murabaha Facility Sole Mandated Arranger & Bookrunner May 2007 USD 31,000,000 True Murabaha Sole Mandated Arranger & Sole Bookrunner December 2006 USD 850,000,000 Islamic Finance Joint Mandated Arranger March 2006 USD 500,000,000 Commodity Murabaha Joint Mandated Arranger April 2006 USD 300,000,000 Syndicated Standby Morabaha Joint Mandated Arranger & Joint Bookrunner December 2006 USD 600,000,000 Dar Al-Arkan Joint Lead Manager & Joint Bookrunner March 2007 USD 100,000,000 Musharaka Trust Sukuk Joint Mandated Arranger September 2006 USD 150,000,000 Musharaka Trust Sukuk Sole Underwriter & Bookrunner September 2006 WestLB – Islamic Finance Highlights • WestLB has arranged and underwritten: • over 15 Islamic financings since the beginning of 2005 • principal aggregate amount of over US$6.0bn *Source: Dealogic Loanware, no. of facilities

  4. Expansion and Innovation • Important Market: New but fast growing niche in the global capital markets: • Growing at approximately 10-15% per annum • S&P estimate the market to be approximately US$400bn, with a potential of US$4 trillion (report Oct 2006) • Islamic finance markets: strong growth over the last 2-3 years: • total volumes just over US$8bn in 2004 • over US$28bn in 2006 • over half the volume in 2004 originated from Malaysia, but the balance has shifted, with financings in the GCC accounting for some US$15bn of the 2006 total • BUT – still a “niche within a niche”: • Over US$2 trillion of conventional bonds and short-term note issuance in 2006 • Total GCC syndicated loan volumes for 2006 reached over US$65bn

  5. Expansion & Innovation • A new product - the first GCC sovereign Sukuk issued in 2001 • Rapid growth • 2005 volume of issuance: 55 issues in 2005 raising US$9.6bn* • 2006 volume of issuance: 66 issues raising US$17.0bn* • 2007: 40 issues totalling US$33.8bn announced* • Volumes in GCC increasing: • 2005: 11 issues raising US$2.3bn* • 2006: 17 issues raising US$6.4bn* • 2007: US$50bn commonly forecast* * Source: IFIS

  6. Expansion & Innovation GCC Total: US$5,846.9m (15 issues representing 49.9% of total issuance)

  7. Expansion & Innovation • Convertible issues • Dubai Ports Authority: US$3.5bn Musharaka Sukuk • Nakheel: US$3.52bn Pre-IPO Sukuk (including look-back rights) • Exchangeable issues • Aabar Petroleum US$460m Sukuk issue Mudarabah structure • Aldar Properties US$2.53bn Sukuk issue Mudarabah structure • Put and Call Options • SABIC US$8000m 20 year Sukuk issue with 5 year put • The Investment Dar US$150m Musharaka Sukuk due 2011 • Put and call options at the end of year 3 • Co-ownership structure • Sharjah Islamic Bank US$225m Sukuk Certificates due 2011 • Co-ownership structure utilising assets in SIB’s Islamic portfolio • MTN Programmes • Sa’ad Group US$5bn programme • Others soon to follow… • Securitisation • First significant issues awaited…

  8. Expansion & Innovation: Wide Appeal of Sukuk Issues • Sukuk issues consistently appeal to both Islamic and conventional investors: Source: DEALOGIC Bondware

  9. Expansion & Innovation: Secondary MarketSukuk secondary market activity – still very limited: • Over 100 Sukuk issues listed on Bloomberg (SUKU) –only a small minority are priced • Very few secondary trades • Primary market still to gain critical mass • Islamic investors on a “learning curve” too Source: SUKU pages Bloomberg

  10. Expansion and Innovation • Global spread: Islamic finance is spreading beyond the GCC and South-East Asia: • Germany August 2004: Anhalt-Saxony €100m Sukuk • Kazakhstan March 2005: US$50m commodity murabaha for Bank TuranAlem • Turkey October and December 2005: US$50m commodity murabaha for TSKB and US$44m “true” murabaha for FFK Fon Leasing** • USA June 2006: US$165m Sukuk for East Cameron Partners (Texas) • Japan August 2006: JBIC US$300-500m Sukuk issue announced and still “under investigation” • China September 2006: US$250m Sukuk announced to finance a Chinese power project • UK April 2007: Government to review feasibility of Sukuk issue • UK May 2007: £225m Islamic LBO for Aston Martin acquisition from Ford Motor Company by The Investment Dar and consortium** ** Sole arranger: WestLB

  11. Islamic Finance – Focus on the UK • UK initiatives: • Labour Government: • "long-term ambition to make Britain the gateway to Islamic finance and trade“ • Aiming to make the City of London one of the world‘s leading centres for Islamic finance • Retail focus in the UK: "Islam is Britain's second-largest faith, and Muslims are involved in every walk of British life“ • Islamic Bank of Britain • Wholesale Islamic banking in the UK: "Islam is Britain's second-largest faith, and Muslims are involved in every walk of British life“ • European Islamic Investment Bank • Bank of London and the Middle East • Further licence applications with the FSA • Legislation to facilitate the offering of Islamic finance products in the UK: • “Alternative financing arrangements” • Initial retail focus • Finance Act 2005: ijara structures extended to commercial property • Finance Act 2006: wakala and diminishing musharaka • Finance Bill 2007 for Sukuk issues to be treated for tax purposes as conventional issues • UK Sovereign Sukuk Issue: feasibility study announced in April 2007

  12. “The name’s Bond….Islamic Bond”

  13. Aston Martin: first fully Sharia-compliant LBO in the UK • WestLB is Mandated Lead Arranger, Underwriter and Bookrunner • Joint Mandated Lead Arrangers: • Bahrain Islamic Bank • EIIB • Standard Bank • £225m Islamic facilities: • £200m term • £25m revolver

  14. Aston Martin - Day 1: Commodity Murabaha Structure Participants Aston Martin transaction: • MLA, Underwriter and Bookrunner: WestLB • Murabaha Agreement between Bidco and WestLB as Investment Agent • Mudaraba Agreement between WestLB and the syndicate banks • Two tranche structure: • £200m term facility • £25m revolving facility • 8 year final maturity, 5 year put option • Profit rate 3 or 6 month LIBOR + 295bp 1. Participations 3. Spot payment Investment Agent (WestLB) Metals Supplier 2. Metals 7. Deferred payment 4. Metals 5. Metals Bidco Metals Buyer 6. Spot payment

  15. Aston Martin - long-term structure: Musharaka WORK IN PROGRESS Participants Purchase Undertaking Aston Martin Lagonda • Facility commitments • AML identifies Asset Pool to contribute to Musharaka • Purchase price for interest in Asset Pool • IA and AML co-own assets • Balance of cash to Musharaka to apply to the co-owned assets • Co-owned assets transferred to Musharaka • IA leases its interest in its proportion of the co-owned assets back to AML • Purchase undertaking – exerciseable on event of default • AML appointed as manager of Musharaka 1. £ Investment Agent Lease Agreement Asset Pool 2. £ Co-ownership interests Co- owned Assets 3. £ Musharaka JV(managed by Aston Martin Lagonda) Management Agreement

  16. Saudi Arabia - First Off-Shore Sukuk

  17. Offshore On-shore Issue Proceeds (US$) Certificates Lease Payments 3 Year Lease Guarantee Sale of Real Estate Assets Sale Proceeds (US$) Payment for Real Estate Rights (US$) Transfer of Real Estate Rights Dar Al Arkan US$600m Sukuk Al Ijara SUKUK HOLDERS ISSUER (DAAR International Sukuk Co.) DAAR SAUDI SPV

  18. Expansion of Islamic banking system – eg, in the GCC and UK GCC funding needs Infrastructure requirements/real estate Corporate “Islamicisation”: listed companies and family companies Europe Event-driven financing Continued FDI Asia: widening interest following Malaysia’s lead (Singapore, Japan, Indonesia, Thailand) Developing harmonisation/standardisation Central Bank of Bahrain AAOIFI Islamic Financial Services Board Gaps in the market Islamic Sukuk/Mudarabah funds Securitisation Stimulants for Continued Growth

  19. WestLB Contacts Islamic Finance – Origination & Structuring David McCaig Telephone (+44) 20 7020 7532 Head of Emerging Markets Fax (+44) 20 7020 7530 Managing Director e-mail david_mccaig@westlb.co.uk David Testa Telephone (+44) 20 7020 3622 Head of Islamic Finance Fax (+44) 20 7020 7530 Executive Director e-mail david_testa@westlb.co.uk Mobile (+44) 7770 435 312 Walid Sarieddine Telephone (+ 44) 20 7020 7533 Director Fax (+ 44) 20 7020 7530 e-mail walid_sarieddine@westlb.co.uk Mobile (+44) 7769 670 660 Sami Neffati Telephone (+ 44) 20 7020 7523 Manager Fax (+ 44) 20 7020 7530 e-mail sami_neffati@westlb.co.uk Mobile (+44) 7825 420 765

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