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Convertible Sukuk in Kuwait: A Legal Framework (continued..) public offerings to issue convertibles and would entail using exchangeable Sukuk structure as opposed to a convertible Sukuk structure. With the support of the government, it is expected that the capital increase process would be reduced in the near future. In addition to the timing issue, in case the company would like to satisfy its obligation to convert the Sukuk into capital through physical settlement by delivering treasury shares, all physical delivery of Kuwaiti shares need to be traded through the Kuwait Stock Exchange (KSE) and each Sukuk holder would need to have a trading account with the KSE to receive the shares. This creates a difficulty for convertibles as the shares to be delivered upon conversion would need to be traded at a discount to the market price, such as the conversion price and the rules of the KSE only allow certain margin deviation from the market price. SPV issuer of the Sukuk against the cash proceeds arising from the offering of the Sukuk to investors or transferring the shares to an omnibus portfolio account for the benefit of the Sukuk holders. However, tax issues may arise if selections are not made carefully as to the jurisdiction of the SPV or the type of investors to participate in the offering. Again, delivery of the shares should be made through the second listing outlined above. In the case of a cash settlement, the Sukuk will be redeemed against payment of the market price of the promised shares in cash. This could be burdensome on the company. In order to protect directors making such a decision, the shareholders should approve the issuance of convertible notes in advance. Solutions To overcome this difficulty, there are three potential choices for the company. The first choice is for the company to offer the shares at market price and pay the Sukuk holders sufficient cash to cover the difference between the market price and the conversion price. This is a cumbersome process and creates the risk that the company is obligated to deliver a large amount of cash to cover the amount of the convertible Sukuk and does not entirely eliminate the possibility of an interloper acquiring the shares. The second choice is to arrange for a secondary listing of the shares on a second stock exchange that allows the delivery of the shares to the Sukuk holders to be made through OTC (over the counter) procedures. This is potentially a lengthy and timeconsuming process. The third choice would be to change the structure of the Sukuk to exchangeable and not convertible. This would entail transferring the title of the shares to the Hossam Abdullah is a corporate, banking and finance partner of ASAR (Al-Sarraf & Al-Ruwayeh), a leading legal services firm in Kuwait. Refer to his profile on page 26. 24
IN THE CATEGORY OF Islamic Corporate Finance, Islamic Banking & Finance Individual Profile Dian S Kusdihardjo Founder/Partner Email: dian.kusdihardjo@mmiklaw.co.id MMIK Law Office Sampoerna Strategic Square, South Tower, 24 th Floor, Jalan Jendral Sudirman Kav 45-46, Jakarta 12930 - Indonesia Tel: +62 21 577 0108 Fax: +62 21 577 0107 Website: www.mmiklaw.co.id Dian attained her Law Degree from the University of Indonesia in 1994 and an Economics Degree from Trisakti University, Jakarta, in 1995. She is a founding partner of Marsinih Martoatmodjo Iskandar Kusdihardjo Law Office (MMIK), one of the leading law firms in Indonesia. MMIK deals extensively with corporate and loan restructuring, project financing, general corporate and investments, mergers and acquisitions, and the capital market. Other than being the principal legal counselor for many Sukuk issuances, she has also been dealing with legal matters in finance and securities, mergers and acquisition, oil and gas transaction, project financing and capital market. Before co-founding MMIK, Dian was a legal consultant for more than 11 years at one of the most prominent law firms in Indonesia. She is licensed as an Advocate by the Indonesian Advocate Association (PERADI) and is also an Indonesian Capital Market Legal Consultant with the Capital Market Supervisory Board and Financial Institution (BAPEPAM-LK). Areas of Expertise: • Finance & Securities • Islamic Finance • Mergers & Acquisition • Oil & Gas Transaction • Capital Market • Project Financing Achievements and Accolades: Islamic Finance news for the Indonesian Deal of The Year 2008 – Indonesia Government Sukuk Islamic Finance Asia for Groundbreakers 2008 Ministry of Finance of the Republic of Indonesia for the issuance of the Sukuk Retail Series SR-001 (the first retail Sukuk) Islamic Finance Deals worked on: • IDR200 billion Syariah Ijarah PLN I Bond (2006) • IDR300 billion Sukuk Ijarah PLN II Bond (2007) • IDR760 billion Sukuk Ijarah PLN III Bond (2009) • IDR2.714 billion Domestic Sovereign Sukuk Series IFR-0001 • IDR1.985 billion Domestic Sovereign Sukuk Series IFR-0002 • IDR5.556 billion Domestic Sovereign Sukuk Series SR-001 • IDR1.5 billion Domestic Sovereign Sukuk for Dana Haji Indonesia Series SDHI 2010 A 25
Page 3 and 4: EDITOR’S NOTE Spotlight on the Le
Page 5 and 6: CONTENTS Islamic Energy Finance Dev
Page 7 and 8: Global Legal Islamic Finance Indust
Page 9 and 10: The Development of Islamic Banking
Page 11 and 12: IN THE CATEGORY OF Islamic Banking
Page 23 and 24: All Nominated Lawyers in the Catego
Page 25: Convertible Sukuk in Kuwait: A Lega
Page 29 and 30: IN THE CATEGORY OF Islamic Corporat
Page 31 and 32: Islamic Finance Dispute Resolution
Page 33 and 34: Islamic Finance Dispute Resolution
Page 35 and 36: IN THE CATEGORY OF Takaful, Securit
Page 37 and 38: Structuring Shariah Compliant Funds
Page 39 and 40: Structuring Shariah Compliant Funds
Page 43 and 44: Shariah Litigation & Arbitration in
Page 47 and 48: A New Dawn For Islamic Project Fina
Page 49 and 50: IN THE CATEGORY OF Islamic Project
Page 53 and 54: Developments in Islamic Energy Fina
Page 55 and 56: Opportunities in Islamic Real Estat
Page 57 and 58: Opportunities in Islamic Real Estat
Page 61 and 62: Transportation Finance (continued..
Page 63 and 64: IN THE CATEGORY OF Islamic Transpor
Page 65 and 66: Securitization and Shariah Law By J
Page 67 and 68: Securitization and Shariah Law (con
Page 69 and 70: IN THE CATEGORY OF Islamic Securiti
Page 71 and 72: International Islamic Finance Vehic
Page 73 and 74: International Islamic Finance Vehic
Page 77 and 78:
The Opportunities for Growth in Tak
Page 79 and 80:
INDEX BY LAWYERS Page in BOLD refer
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