legal guide09.indd - Islamic Finance News

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All Nominated Lawyers in the Category of Islamic Transportation Finance • • • • • • • • • • Christian Saunders Allen & Overy Gervais Green Norton Rose Hamid Yunis Taylor Wessing Husam Hourani Al Tamimi & Company Ian Siddell Baker & McKenzie Jeffrey Smith Norton Rose Martin Green Stephenson Harwood Nadim Khan Herbert Smith Neil D Miller Norton Rose Oliver Agha Agha & Shamsi Also Nominated in Takaful, Islamic Securitization & Structured Finance, Islamic Dispute Resolution, Islamic Real Estate Finance, Islamic Project Finance, Islamic Banking & Finance See Full Profile on Page 33 • • Paul Holland DentonWildeSapte See Full Profile on Page 61 Paul Ng Stephenson Harwood 62
Securitization and Shariah Law By John H Vogel Following the dramatic growth of securitized financings during the past 15 years, the global economic collapse of 2008-2009 brought an abrupt end to these types of transactions, both in the Middle East and North Africa (MENA) region and the West. For the first time, there are defaults in the Islamic Sukuk market — most notably East Cameron Bay Partners and Investment Dar Company. As recovery is seen in the economies of the Middle East, as well as those of the West, there is likely to be a substantial increase in governmental regulation of the financial sector, including a greater level of standardization, harmonization and transparency. Moreover, liquidity is much reduced throughout the MENA region as a result of the worldwide economic crisis, as well as a “freeze” by central banking authorities in the Middle East on banking accounts of some developers. As a result, it is likely that there will be a renewed effort to encourage securitization in the MENA region of qualifying assets. Saudi Arabia has said it will institute a “Fannie Mae”-like structure for housing, and the UAE is likely to do the same. In addition, MENA countries are increasingly permitting the foreign ownership of real estate, a condition for successful securitization. For MENA countries, asset securitization would help in the creation of new markets, reduce financial institutions’ capital adequacy requirements and sector concentration risk, and expand corporations’ access to new sources of finance on favorable terms. The challenge, looking forward, is the harmonization and standardization of Shariah-compliant financial products, allowing their transformation into marketable financial instruments. Many MENA countries are undertaking large-scale infrastructure projects requiring long-term finance, including roads, bridges, power and water facilities, oil and gas facilities and telecommunications. These Securitization 101 To refresh the reader’s memory, a securitization is a transaction whereby an asset (including payment streams from assets) is separated from the owner or originator of such an asset and independently financed, based upon its characteristics. To accomplish this, a single purpose entity (SPE) is created that purchases the asset from the owner/originator. The SPE obtains the funds for the purchase by issuing securities that represent, depending on the overall kind of transaction and legal regime, either ownership or some other obligation encumbering the asset at issue. The sale and the securities issuance are consummated concurrently, so that the main risks the purchasers of the securities face are risks related to the asset itself and not the credit risk of the owner/originator. The SPE has restrictions on its ability to incur debt, make other financial arrangements, declare bankruptcy or insolvency and operate the asset. For a securitization structure to comply with Shariah, the assets being securitized must be consistent with the principles of Shariah (the securitization of pools of interest-bearing loans would not be appropriate, for example) and should be a tangible asset. The relationship between the underlying obligor and the originator should also fall within one of the accepted Islamic finance schemes. Because the main principle underlying any Islamic finance operation requires that the operation be assetbacked in the context of a Shariah compliant securitization structure, it must then translate into some degree of ownership. Another major principle is equitable risk-sharing as to the underlying assets by the parties to the transaction. continued.... 63
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EDITOR’S NOTE Spotlight on the Le
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CONTENTS Islamic Energy Finance Dev
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Global Legal Islamic Finance Indust
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The Development of Islamic Banking
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IN THE CATEGORY OF Islamic Banking
Page 13 and 14: IN THE CATEGORY OF Islamic Banking
Page 23 and 24: All Nominated Lawyers in the Catego
Page 25 and 26: Convertible Sukuk in Kuwait: A Lega
Page 27 and 28: IN THE CATEGORY OF Islamic Corporat
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: IN THE CATEGORY OF Islamic Transpor
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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legal guide09.indd - Islamic Finance News

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