ipds final

8/7/2019 Ipds Final

1/37

ISLAMIC PRIVATE DEBTISLAMIC PRIVATE DEBTSECURITIES (IPDS)SECURITIES (IPDS)

AIMI MARLINI OMARAMIRA ISMAILMOHD KHAIRI AZIZ

NUR AZIMAH ABD SAMADSITI SARAH IBRAHIMSARINI AZIZAN

8/7/2019 Ipds Final

2/37

INTRODUCTIONINTRODUCTION

8/7/2019 Ipds Final

3/37

Definition of Private DebtDefinition of Private DebtSecuritiesSecurities

y What is Private Debt Securities?y

It is anevidence of debt issued bycompaniesy It is defined as a promiseto paythe

interest/coupon over a fixed time periodOR the selling priceattheend ofa

specific period.y Therefore, it is under the definition of

debentureas per Securities Comission(Ammendment) Act 2000.

8/7/2019 Ipds Final

4/37

Definition of Private DebtDefinition of Private DebtSecuritiesSecurities

i. Debenture stocks i.e. loan stocks

ii. Bondsiii. Notes

iv. Any other evidence ofborrowed moneys

y In Islamicterminology, Islamic PrivateDebt Market sometimes knownasShahadahal-dayn or Sukukal-Dayn(Certificate of Debt)

8/7/2019 Ipds Final

5/37

The need for financing in BusinessThe need for financing in Business

8/7/2019 Ipds Final

6/37

What is Bond?What is Bond?

y It is a fixed income investment/loans or debts

y

The obligationto paythe debts is beingevidenced insecurities or certificate issued bythe debtor (issuer)

y Pri ceo Nominal valueo Coupon rateo Premium/Discounto Yield

Term to maturityo Short, medium, & Longterm

Bonds withcoupon or discount

8/7/2019 Ipds Final

7/37

Salient Features of IPDSSalient Features of IPDS

y IPDS reflects the issuer owes certain

amount of moneyto IPDS subscribers.y IPDS is an IOU or acommitmentto payto

the IPDS subscribers.

y Chronologically, debt or the owing or the

indebtness mustbecreated prior to IPDSstructuringand notthe other wayaround.

y From Islamic perspective,the mustbeShariahacceptablebecause otherwisethe

securities arenot Islamic.

8/7/2019 Ipds Final

8/37

Salient Features of IPDS (Salient Features of IPDS (cont..)cont..)

y The priciples of Shariahgoverningboth

issuer and investor areto be determinedprima facie bythecontracts entered intobyboth of issuer and investor.

y Differentcontracts would create differentlegal implications to whicha Shariahadviser mustbeaware of.

8/7/2019 Ipds Final

9/37

Salient Features of IPDS (Salient Features of IPDS (cont..)cont..)

y Thelegal imlications could be in one of

the folowing possibilities:i. Theamount of debt fixed vs. floating

(sale vs. lease)

ii. Extra income or benefitattached to the

securities (loan vs. commercialcontract)iii. Underlyingasset(tngible vs. intangible

vs. receivable vs. futureasset)

8/7/2019 Ipds Final

10/37

PRINCIPLES &PRINCIPLES &

CONCEPTS OF IPDSCONCEPTS OF IPDS

8/7/2019 Ipds Final

11/37

Islamic financingIslamic financing

Financing

Debt

BaiBithaman

Ajil

BaiMurabahah

Bai Istisna Ijarah

Equity

Mudharabah Musyarakah

8/7/2019 Ipds Final

12/37

y The innovation of Islamicbond products

needs to examine

y Riba principle

o Ribaal-Qurudh

o Ribaal-Buyu

Gharar principle

8/7/2019 Ipds Final

13/37

SHARIAH PRINCIPLES INSHARIAH PRINCIPLES INSTRUCTURING IPDSSTRUCTURING IPDS

8/7/2019 Ipds Final

14/37

List ofList of ShariahShariah Principles in PDSPrinciples in PDS

Funding Principles

Bai Bithaman Ajil (BBA), Bai Inah, BaiSalam, Ijarah, Ijarah Thumma Bai, Istisna,Mudharabah/Muqaradhah, Murabahah,Musyarakah,Qardhul Hasan

Supplementary Principles

Bai Dayn, Bai Muzayadah, Dhaman/Kafalah, Hak Tamalluk, Hibah, Hiwalah,

Ibra, Ittifaq Dhimmi, Rahnu, Sanadat,Sukuk, Ujrah/Ajr,Wakalah

8/7/2019 Ipds Final

15/37

The application ofThe application of BaiBai BithamanBithamanAjilAjil (BBA)(BBA)

y Issuers debtarising out ofbuyingand

sellingtransactionto be securitised viathe issuance of primaryand secondaryBBA notes.

y The debtarising out oftransaction wasscuritised viathe issuance of IslamicBonds (IPDS) inthe form of PrimaryandSecondary Notes

8/7/2019 Ipds Final

16/37

The application ofThe application of BaiBai BithamanBithamanAjilAjil (BBA) (cont..)(BBA) (cont..)

y Primarynotes = Principal

y

Secondarynotes = Profit portion

Company issuing BBA PrimaryNotes & Secondary Notes to

Bank(Primary Subscriber)evidencingthe debtthatcreatedfrom the Uqud Muawadat ofbuyingand selling of Asset.

8/7/2019 Ipds Final

17/37

The application ofThe application of BaiBai InahInah (BI)(BI)

y BI transaction ~ BBA transaction

y Butthe different is that it only involvestwo parties (Asset is already owned bythe issuer)

8/7/2019 Ipds Final

18/37

The application ofThe application of BaiBai InahInah (BI)(BI)(cont..)(cont..)

y (1) Primary subscribers purchaseassets ofup to RM 700mfrom ABC

y (2) Primary Subscribers sellbackassets to ABC atRM700m + profit

y (3) ABC issues Serial Bonds to evidence paymentobligation of RM700m + profitat respective maturities

ABC (issuer) Primarysubscribers

8/7/2019 Ipds Final

19/37

The application ofThe application of MurabahahMurabahah

y Appropriate for shortand medium term

fundingactivities which involve revolvingfacility suchas MuNIF (MurabahahUnderwritten Notes Issuence facility)

y MuNIF has theflexibilityto draw and re-draw withinthe specified limitandavailability period.

8/7/2019 Ipds Final

20/37

The application ofThe application of MurabahahMurabahah(cont..)(cont..)

y MuNIF is a floater the profit margin is

setevery1,2,3,6, or 12 months.

y The setting of profits is facilitated througha series of aqads whichneed to be

fulfilled in order to meet Shariahrequirements.

8/7/2019 Ipds Final

21/37

The application ofThe application of MurabahahMurabahah(cont..)(cont..)

Issuer &

Arranger

System Underwriters

MurabahahNotes

(1) Identify

assets

(2) Sell assets on a

tendered basis

(4) Debt arising out of the

buying back of assets is

securitised by the issuance of

Murabahah Notes

(3) Simultaneously,

issuer bought back

the assets at the

Selling Price

8/7/2019 Ipds Final

22/37

The application ofThe application of IjarahIjarah

y Analternativeto theconventionalleasing

facilities.

y Under Ijarah structure of IPDS,themechanism ofleasing willbeutilized to

raise funds ona variable ratebasis.

y Ijarah Notes willbe issued to evidenttheownership oftheleased assets and

thereafter to benefit from Ijarah rentals.

8/7/2019 Ipds Final

23/37

The application ofThe application of IjarahIjarah

Issuer

Investors

Lessor/Trustee

AssetLease

Buy

IjarahNotes

Supplyfunds

8/7/2019 Ipds Final

24/37

The application ofThe application of IstisnaIstisna

Government SPVABC

Contractor

(IstisnaProject)

Agreement

Sell immediately IstisnaProject with deferred

payment(BBA/Murabahah?BaiInah)

BUY

8/7/2019 Ipds Final

25/37

REQUIREMENT TO ISSUE IPDSREQUIREMENT TO ISSUE IPDS

8/7/2019 Ipds Final

26/37

Requirement to issue IPDSRequirement to issue IPDS

y Any person who is acorporation withinthe meaning of sub-section 2(1) SCA is eligibleunder theseguidelines

y

This means anybodycorporate formed or incorporated orexisting within Malaysia or outside Malaysiaand includesany foreigncompanybut does not include:

Anybodycorporatethat is incorporated within Malaysiaand isbynotice ofthe Minister

Anycorporate sole

Any society registered under any writtenlaw relatingto co-operative societies

Anytradeunion registered under any writtenlaw as atradeunion

8/7/2019 Ipds Final

27/37


y In relationto Islamic private debt securities (IPDS) whichcomeswithintheambit oftheseguidelines,the issuer mustappointeither:

1. An independent Shariahadviser who has beenapproved bythe SC

and who meets the followingcriteria: The person is notanundercharged bankrupt

The personhas notbeenconvicted for any offencearising out ofacriminal proceeding

The person is ofgood repute

The person possesses the relevantqualifications and experience

particularly in fiqh muamalahand Islamic jurisprudence and has aminimum ofthreeyears workingexperience or exposure in Islamicfinance

2. An Islamicbank or licensed institutionapproved by Bank NegaraMalaysiato beadvise onallaspects of IPDS including:

Documentation

Structuring Investment

Administrativeand operational matters

8/7/2019 Ipds Final

28/37


y Suchcorporation mustengageatleast

one Syariahexpert who meets thecriteriastipulated. Inaddition,thecorporationshould nothavebreached any securitiesor bankinglaws sincethe date of

incorporationnothavea winding-up orderor resolution passed againstthecorporation

8/7/2019 Ipds Final

29/37

RULES & REGULATION IN ISSUINGRULES & REGULATION IN ISSUINGIPDSIPDS

8/7/2019 Ipds Final

30/37

Rules & Regulations in Issuing IPDSRules & Regulations in Issuing IPDS Under Securities Commission Act 1993Under Securities Commission Act 1993

Guidelines from Securities Commission

Witheffect from 1 July 2000,any person who issues,offers for subscription or purchase, or makes aninvitationto subscribe for or purchase(issue, offer ormakean invitation), debentures would requiretheapproval ofthe SC under section32 ofthe Securities

Commission Act1993(SCA ). This would includeprivate debt securities, suchas,bonds,notes,loanstocks and commercial papers, whether convertibleinto equity or notand whether redeemable orotherwise.

8/7/2019 Ipds Final

31/37


(Contd)(Contd)

This guidelinealso highlighted ona few important rulesor procedures to comply in issuing Islamic Private Debt

Securities whichare:-

1) OFFERINGS OF PRIVATE DEBT SECURITIESUNDER A SHELF REGISTRATION SCHEMEMustcomply withtheseGuidelines onthe Offering of

Private Debt Securities as wellas the SC (ShelfRegistration Scheme for Debentures) Regulations 2000.

2) DOCUMENTS/INFORMATION REQUIREDOther than stated documents required in Appendix 1, SC

may requireadditional information from the issuer and itsprincipaladviser for post-vetting purposes atanytime.

8/7/2019 Ipds Final

32/37


(Contd)(Contd)

3) SUBMISSION OF PROPOSALBelow arecategories of persons that mayactasprincipaladviser for the followingtypes of proposals:

Merchant banks, commercial banks, universalbrokers or discount houses All proposals of private debt securities thatarenotcapable ofbeingconverted into equityhowsoever.

Merchant banks or universal brokers All proposals of private debt securities thatarecapable ofbeingconverted into equity. All proposals of private debt securities together withwarrants. All proposals of private debt securities

8/7/2019 Ipds Final

33/37


(Contd)(Contd)

4) ELIGIBLE PERSONSAny person who is acorporation withinthe meaning of

sub-section 2(1) SCA is eligibleunder theseguidelines.

5) UNDERWRITINGTheunderwriting ofany issue, offer or invitation shallbedecided bythe issuer and its principaladviser.

6) OTHER REGULATORY APPROVALSAllapprovals in relationto the issue, offer or invitationfrom other regulatorybodies mustbe obtained prior tothe submission ofany written declarations/ information

to the SC guideline.

8/7/2019 Ipds Final

34/37

Rules & Regulations in Issuing IPDSRules & Regulations in Issuing IPDS Under Securities Commission Act 1993Under Securities Commission Act 1993(Contd)(Contd)

7) MODE OF ISSUEAll issues of private debt securities under these

Guidelines mustbe reported and/or tendered ontheFully Automated System for Issuing/Tendering(FAST)unless alisting is sought onany Malaysianstockexchange.

8) TIME FRAME FOR APPROVALS FROM THE SCThe SC would give its approval within14 working daysfrom the date of receipt ofall declarations,completeinformationand documentationas required undertheseGuidelines inthe followingcases:

8/7/2019 Ipds Final

35/37

Rules & Regulations in Issuing IPDSRules & Regulations in Issuing IPDS Registration ofRegistration of ShariahShariah Adviser for IPDSAdviser for IPDS

IssuesIssues

IPDS issuers mustappointan independent Syariahadviser,approved bythe Commission,to advise onall

aspects of IPDS including documentation, structuringand investment.

The independent Syariah adviser canbean individualor acompany who meets the minimum requirements

stated inthe PDSG

uidelines.

However as analternative,the issuer canalso engagea Syariah committee ofan Islamicbank or alicensedinstitutionapproved bythe BNM to carry outan Islamic

banking scheme.

8/7/2019 Ipds Final

36/37

Rules & Regulations in Issuing IPDSRules & Regulations in Issuing IPDS Appointment of Member inAppointment of Member in ShariahShariahAdvisory CouncilAdvisory Council

Commissionhas since June1996established the SACto review and provideguidance onall matters relatedto ICM/IDM to ensureconformity with Syariahprinciples.

In 2002,the Commission reappointed all ofthe SACmembers for another two-year term witheffect from 1

July 2002 to 30 June 2004.

8/7/2019 Ipds Final

37/37

Rules & Regulations in Issuing IPDSRules & Regulations in Issuing IPDS Harmonization ofHarmonization of ShariahShariah RulingsRulings

The Commissionhad in July, informed relevantindustrybodies and associations onthe importance of

recognizingthe SAC as the onlybodythatcan makepronouncements to the public onany Syariah mattersin relationto thecapital market.

ipds final

Documents