Financing an Infrastructure: Inaugural Financing Project in Brunei Darussalam BI-ADFIMI-KNKS Joint CEO Seminar on “Islamic Structured Finance: Cases of Infrastructure Project Finance in IsDB Member Countries ” 12 November 2019 Jakarta, Indonesia Presented by: Nurhuaida Damit
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Outline • Introduction • Market Development • Financing Mechanism • Construction Phase ( Istisna’a ) • Operation Phase (Ijarah) • Issues and Challenges 3
Introduction Structure of Financial System Assets in 2018 Population : Takaful Finance Operators 442,400 Companies Insurance 3% (2018) 4% companies 5% Brunei Darussalam Area: 5,767 sq. km Conventional Islamic Banks Banks GDP : BND 18.3 32% 56% billion / USD 13.39 billion (2018) 4 Source: Department of Economic Planning and Development (DEPD) and Autoriti Monetari Brunei Darussalam ( AMBD)
Market Development Maiden issuance of Brunei Government Establishment of Milestones Short-Term Sukuk Al-Ijarah IBB Securities Sdn Bhd IBB Shares Issuance of BLNG/IDBB Sukuk IPO Infrastructure Sukuk Al-Ijarah (corporate sukuk) 1993 1994 2000 2001 2005 2006 2011 2013 2015 2016 2017 2018 Establishment Establishment Full Signatory Establishment of Syariah of AMBD to IOSCO Infrastructure development of Brunei Financial MMoU International Supervisory Financial Introduction Introduction SMO & SMR Securities Board (SFSB) Centre (BIFC) of MCB of AMBD came into Markets Order Averaging Standing force (SMO, 2013) Provision Facilities Securities Issuance of Guideline Securities Order, Mutual on Application to Markets Regulations Funds Order carry out Islamic (SMR, 2015) 5 (2001) Investment Business Notes: IBB - Islamic Bank of Brunei, BLNG – Brunei LNG, IDBB – Islamic Development Bank of Brunei
Sukuk as a Financing Mechanism Objectives of the Project: 1. Kick start and develop Brunei Darussalam’s capital market; 2. Rate as benchmark for any potential domestic long-term issuances; and 3. Structure can also be used for any other potential government-related or government sukuk issuances, if required. 6
Infrastructure Sukuk This sukuk is a hybrid sukuk and the structure is divided into two phases: 1. Construction Phase ( Istisna’a ) : The borrower procures the construction of project assets and then transfers beneficial rights of assets to Islamic financiers. As consideration, Islamic Financiers makes phased payments to the borrower. 2. Operating Phase (Ijara) : Financiers lease project assets to the borrower. In turn, the borrower makes lease payments (equivalent to debt service). Underlying Asset: The Infrastructure Project 7
Structure: Construction Phase ( Istisna’a ) 7. AMBD finances construction company through Istisna’a , for the Construction purpose of building the asset. AMBD company will pay the construction company the cost of the project 6. SPV appoints AMBD as its representative AMBD ( wakil /agent) to manage certain services in relation to maintenance of the lease assets. 1. AMBD sells the beneficial 4. SPV pays AMBD for purchase ownership of the underlying of beneficial of underlying asset asset to SPV 5. SPV as Trustee for Certificateholders, forward leases the asset to AMBD through SPV Ijarah Mawsufah Fi-Zimmah and receive periodic advance rentals from AMBD 8. SPV distributes the advance rental 3. Certificateholders pay payments to the investors. 2. SPV issues Sukuk to Sukuk issuance proceeds to Certificateholders SPV 8 Certificateholders
Structure: Operation Phase (Ijarah) Construction company AMBD 1. SPV as Trustee for Certificateholders will 2. SPV as Trustee for Certificateholders to receive continue to lease the asset to AMBD periodic rentals from AMBD through Ijarah SPV 3. SPV to distribute rental payments to the investors. At maturity, SPV pays principal + rental to investor Certificateholders
Issues and Challenges Internal Syariah Financial Investor Supervisory Board Stakeholders Other External Legal Asset Stakeholders Documentations 10
Bibliography • AMBD Annual Report (2018), Autoriti Monetari Brunei Darussalam (AMBD). • Brunei Darussalam Key Indicators (2018), Department of Economic Planning and Development (DEPD), Ministry of Finance and Economy Brunei Darussalam. 11 www.ambd.gov.bn | @autoriti_monetari
THANK YOU. 12 www.ambd.gov.bn | @autoriti_monetari
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