Financing an Infrastructure: Inaugural Financing Project in Brunei - - PowerPoint PPT Presentation

Presented by: Nurhuaida Damit BI-ADFIMI-KNKS Joint CEO Seminar on “Islamic Structured Finance: Cases of Infrastructure Project Finance in IsDB Member Countries” 12 November 2019 Jakarta, Indonesia

Financing an Infrastructure: Inaugural Financing Project in Brunei Darussalam

2

Disclaimer

The views expressed in this presentation are those of the author(s) and do not necessarily represent the views of AMBD, the Board of Directors, or AMBD Management. The information shared in this document is permitted for use in print, electronic, or any other media, provided these are for personal use or non-commercial scholarly, educational, or scientific research or study purposes and the used material is appropriately attributed to AMBD. No written permission is required for such use. Users of the information are fully responsible for any consequences resulting from their use of the

• information. AMBD does not guarantee the quality, accuracy, completeness of the information. While

efforts are made to verify the information provided, the information may contain typographical or other errors and should not be assumed to be error free. By using the Information, you agree that AMBD shall not be responsible for any direct, indirect, special, incidental or consequential damages or any other damages whatsoever and howsoever caused, arising

• ut of or in connection with the use of the Information or in reliance on the Information available.

• Introduction
• Market Development
• Financing Mechanism
• Construction Phase (Istisna’a)
• Operation Phase (Ijarah)
• Issues and Challenges

3

Outline

Introduction

4

GDP: BND 18.3 billion / USD 13.39 billion (2018) Area: 5,767 sq. km Population: 442,400 (2018)

Source: Department of Economic Planning and Development (DEPD) and Autoriti Monetari Brunei Darussalam (AMBD)

Brunei Darussalam

Islamic Banks 56% Conventional Banks 32% Insurance companies 5% Takaful Operators 3% Finance Companies 4%

Structure of Financial System Assets in 2018

5

1993 1994 2000 2001 2005 2006 2011 2013 2015 2016 2017 2018

IBB Shares IPO Establishment of IBB Securities Sdn Bhd Establishment

• f Brunei

International Financial Centre (BIFC) Securities Order, Mutual Funds Order (2001) BLNG/IDBB Sukuk Al-Ijarah (corporate sukuk) Establishment

• f Syariah

Financial Supervisory Board (SFSB) Maiden issuance of Brunei Government Short-Term Sukuk Al-Ijarah Establishment

• f AMBD

Securities Markets Order (SMO, 2013) Securities Markets Regulations (SMR, 2015) Full Signatory to IOSCO MMoU Issuance of Guideline

• n Application to

carry out Islamic Investment Business Introduction

• f AMBD

Standing Facilities SMO & SMR came into force Introduction

• f MCB

Averaging Provision

Issuance of Infrastructure Sukuk

Market Development

Infrastructure development Milestones

Notes: IBB - Islamic Bank of Brunei, BLNG – Brunei LNG, IDBB – Islamic Development Bank of Brunei

6

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.

Sukuk as a Financing Mechanism

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

Infrastructure Sukuk

• 1. AMBD sells the beneficial
• wnership of the underlying

asset to SPV

SPV Certificateholders Construction company

8

AMBD

• 8. SPV distributes the advance rental

payments to the investors.

• 2. SPV issues Sukuk to

Certificateholders

• 3. Certificateholders pay

Sukuk issuance proceeds to SPV

• 5. SPV as Trustee for Certificateholders,

forward leases the asset to AMBD through Ijarah Mawsufah Fi-Zimmah and receive periodic advance rentals from AMBD

• 6. SPV appoints AMBD as its representative

(wakil/agent) to manage certain services in relation to maintenance of the lease assets.

• 4. SPV pays AMBD for purchase
• f beneficial of underlying asset

Structure: Construction Phase (Istisna’a)

• 7. AMBD finances construction

company through Istisna’a, for the purpose of building the asset. AMBD will pay the construction company the cost of the project

SPV Certificateholders Construction company AMBD

• 1. SPV as Trustee for Certificateholders will

continue to lease the asset to AMBD through Ijarah

• 3. SPV to distribute rental payments to the
• investors. At maturity, SPV pays principal +

rental to investor

• 2. SPV as Trustee for Certificateholders to receive

periodic rentals from AMBD

Structure: Operation Phase (Ijarah)

Syariah Financial Supervisory Board

Investor Internal Stakeholders Other External Stakeholders Asset Legal Documentations

10

Issues and Challenges

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