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INTERNATIONAL

BOND
FINANCING
EUROBONDS AND SUKUK
BONDS

RIZWAN SHAUKAT MB-04-28


SALMAN IRSHAD MB-04-
31
HASHMAT NAWAZ MB-04-36
What are bonds?
A bond is a debt security issued by the
government or a company to the general
public for a fix return and for a specified
period of time.

Bills - debt securities maturing in less


than one year. Notes - debt securities
maturing in one to 10 years.
Bonds - debt securities maturing in more
than 10 years.
Different Types Of
Bonds
 Government Bonds
 Municipal bonds
 Corporate Bonds
 Zero-Coupon Bonds
 Forexample, let's say a zero-coupon bond with
a $1,000 par value and 10 years to maturity is
trading at $600; we will be paying $600 today
for a bond that will be worth $1,000 in 10
years.
The Eurocurrency market
“Currency”
“Euro”

 Eurocurrency market
 Eurocurrency
 Eurobanks
Eurobonds (Global bonds)
A Euro bond underwritten by an
international syndicate of banks and
other financial institutions and placed
in the countries other than the
country in whose currency the issue
is denominated.
 Benefits
 choose country
 small par value
 high liquidity
Eurobonds (Global bonds)
 Interest
 Maturity
 Unsecured
 Euro bonds VS Foreign bonds
A foreign bond is underwritten by a
syndicate consisting of members from a
single country, sold primarily within that
country and denominated in its
currency.
Eurobond Market composition
Market Components
Issuer • Syndicate
• Primary market

Bank • Secondary market

(lead manager)

Underwriter
Managing
group Selling group
ISLAMIC BOND
MARKET
ISLAMIC BOND MARKET
Categories of Islamic Bonds

 Ijarah bonds
 istisna‘  bonds
 mudarabah or muqaradah bonds
 musharakah bonds
 salam bonds and
 murabahah bonds
ISLAMIC BOND MARKET
IjARAH

Ijarah is a contract according to


which a party purchases and leases
out equipment required by the client
for a rental fee. The duration of the
rental and the fee are agreed in
advance and ownership of the asset
remains with the lessor.
ISLAMIC BOND MARKET
ISTISNA

Istisna‘ is a contract to sell a


manufacturable good with an
undertaking by the seller to present
it manufactured from his own
material, according to specified
description and at a determined
price.
ISLAMIC BOND MARKET
WHAT IS SUKUK BOND?

Investment certificate representing a


proportional or undivided ownership
interest in an asset or pool of assets

 Sukuk al-ijara bonds and Sukuk al-


istisna bond
ISLAMIC BOND MARKET
Three main steps involved in the
bond issuance

 Securitization
 Bond Issuance
 Trading of debt certificates
ISLAMIC BOND MARKET
SECURITIZATION
 Role of al-mal or property
 Haqq mali- investor’s right to sell the bond
 The accounting and auditing organization for
Islamic Financial Institutions – standard for
Investment Sukuk

BOND ISSUANCE
 Issue of Debt certificates
 Issuing company or special purpose vehicle
(SPV)
 Islamic coupon bonds and islamic zero
ISLAMIC BOND MARKET
 Role of riba (interest)

"And whatever riba you give so that it may


increase in the wealth of the people, it does
not increase with Allah." [Ar-Rum 30:39]
ISLAMIC BOND MARKET

TRADING OF DEBT CERTIFICATES

 Islamic bonds bought for long-term


investment
 Lack of secondary market
Pakistani Infrastructure
Sukuk
Sukuk Holder Pakistan
government
Sukuk guarantee
Certificate Certificates/
Proceeds payments
Ijara agreement
Sale/ transfer SPV lease to lessee
of asset SPV issuer or lesser Pak Co.
Pak Co.
(Special purpose Lessee
Seller
Vehicle)
Certificate
Lease rentals
Proceeds
LIBOR
+margin
Transfer title
Power to issuer
Plant
Comparison of Euro bonds and
Sukuk Bonds
 Security
 Risk
 Rent Vs Interest
 Trading in secondary market
Euro bond issued by Pakistan

 Why Pak entered the bond market ?


 On February 12, 2004
issued US $ 500 million
5 year maturing in 2009
lead managed by Deutsche Bank, JP
Morgan and ABN Amro Bank
• four times oversubscribed
• highly appreciated by international and
local print and electronic media
Euro band issued by Pakistan

 Sukuk issue held by the GoP on 16


March 2005
subscriptions of around US$ 1.2 billion
Issued USD 600 million 5 year bond
priced at 6-month US$ Libor + 220 bps

 Malaysia and Qatar in 2002 and


2003

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