Sukuk.

1. THE TABREED SUKUK By: Camille Paldi
CEO of FAAIF

2. TABREED SUKUK
In the Tabreed sukuk, an istisna’a and ijarah structure was used to
fund the construction of a cooling plant.
The SPV (Tabreed 06 Financing) will first issue the sukuk and raise
US$200 million.
The issuer (on behalf of the investors) will then enter into an istisnaá
agreement with Tabreed, whereby Tabreed agrees to construct and
deliver the cooling plant.
In other words, the SPV is buying the cooling plants from Tabreed.
The payment to Tabreed is done in installments.

3. TABREED SUKUK
Under the istisnaá agreement, Tabreed was required to pay a security
amount (US$1.25 million) on each payment date (two days before the
periodic distribution date) to secure its obligation under the istisnaá
agreement.
This means as long as the plant is under construction, Tabreed will
pay this security amount.
In addition, upon completion and delivery of the plant at each stage,
the SPV will lease it to Tabreed, for which Tabreed will make lease
payments.
This security amount and the lease payment will be used to fund the
periodic distribution to the sukuk holders.

4. TABREED SUKUK
Besides the istisnaá and ijarah agreements, Tabreed also provided a
purchase undertaking to the issuer (SPV) agreeing to purchase the
following:
 The portion of cooling plant that has been constructed and delivered to the SPV if a
default occurs during the construction (istisnaá) stage, at a price corresponding to
the value thereof;
 The cooling plant at the price of the outstanding principal value of the sukuk if
default occurs after the completion and during the leasing (ijarah) stage;
 The cooling plant at the price of outstanding principal value of the sukuk at
maturity.

5. TABREED SUKUK
The amount obtained from the execution of this purchase underaking
will be used to redeem the sukuk.

6. TABREED SUKUK
Since this deal involved assets under construction, it still faced
restrictions for secondary trading.
Recall that the sukuk was issued for US$200 million.
On the issuance date, the SPV paid US $40 million to Tabreed for the
partially completed cooling plant (which was also the first installment
under the istisna’a agreement).
In order for the sukuk to be tradable, the Shariáh board required that
at least one third of the sukuk be in the form of tangible assets.

7. TABREED SUKUK
US$40 million (which was in the form of a partially completed plant)
represented only about 20% of the sukuk.
To achieve the one-third benchmark, an additional tangible asset was
introduced in the asset pool.
To facilitate this, Tabreed first bought palladium worth US$26 million
from either HSBC or a third party broker.
Tabreed then sold this to the SPV for US$26 million.

8. TABREED SUKUK
With this palladium and the US$40 million partially completed plant,
the total tangible asset that backed the sukuk was exactly one third.
This allowed the sukuk holders to freely trade the sukuk in the
secondary market.
The remaining cash (US$144 million) was kept in a permitted
investment account (Islamic capital protected deposits).

9. TABREED SUKUK
The SPV also obtained a purchase undertaking from HSBC that on the
first distribution date (On 20 January 2007), which also coincides with
the delivery and payment of the second stage of completion of the
plant, HSBC would buy the palladium from the SPV at US$26 million.
The SPV used the cash to pay Tabreed the second installment under
the istisnaá.
When the second stage of the plant was completed, the sukuk traded
in the secondary market.

10. STANDARD AND POOR’S RATES
TABREED
Standard & Poor’s stated that in this transaction, the following security
is provided by the issuer: The issuer acts as trustee in respect of the
trust assets for the benefit of the note holders.
The trust assets include investments in plants linked to the istisna’a
agreement, the commodities and authorized investments, any plants
delivered, the rights under the transaction documents and all
proceeds held to the credit of the transaction account (this account is
where payment from the lessee is collected on each periodic payment
date).

11. STANDARD AND POOR’S RATES
TABREED
Tabreed’s istisna’a sukuk benefits in theory from ownership of the
district cooling plants built once they have been delivered to the
issuer.
In practice, however,Tabreed’s cooling plants are fixed to the land on
which they are constructed.
Title to the applicable land includes title to the cooling plants which
have no separate rights of ownership.
As the land is owned by the Abu Dhabi government, Tabreed
ultimately only has contractual rights over the cooling plants and not
legal title.

12. STANDARD AND POOR’S RATES
TABREED
Legal title over the cooling plants is therefore likely only theoretical
and not capable in practice of truly being assigned to the note
holders.
Having said this, machinery and equipment relating to the
constructed plants is legally owned by Tabreed and can be
transferred to the note holders as part of the trust assets, although
the value of such assets is likely to be well below any market value
assigned to the cooling plants.

13. STANDARD AND POOR’S RATES
TABREED
The key reason we considered the Tabreed sukuk financing to be
secured is that enough features were present in the structure to
render the financing comparable with other existing Tabreed secured
financings.
These features included: 1) A negative pledge over plants delivered to
the issuer and leased by Tabreed; and 2) A cash waterfall structure
where revenues derived from the leases were directly sent to a
transaction account, which in turn is assigned to the note holders.

14. STANDARD AND POOR’S RATES
TABREED
These two features meant that that the designated cooling plants
delivered to the issuer could not be commingled into Tabreed’s
business or used to meet other Tabreed unsecured obligations while
the sukuk was outstanding.

15. STANDARD AND POOR’S RATES
TABREED
Standard & Poor's Ratings Services assigned its BB long-term debt
rating to the proposed non-deferrable, deeply subordinated
mandatory convertible Ijarah Sukuk notes issued by Tabreed 08
Financing Corp., a special-purpose vehicle (SPV) subsidiary of UAE-
based National Central Cooling Co. PJSC, Tabreed; BBB-/Stable/--,
that is incorporated in the Cayman Islands.

16. STANDARD AND POOR’S RATES
TABREED
Tabreed plans to use the proposed Sukuk issuance to fund the
construction of cooling plants.
An Istisna’a agreement and a lease agreement will govern the Ijarah
Sukuk structure.
The Ijarah nature of the Sukuk refers to the sale-leaseback aspect of
the transaction and Istisna’a refers to the construction and delivery
aspect.
On the closing date, the issuer buys the plants or a part thereof from
Tabreed and enters into a lease arrangement with Tabreed as lessee.

17. STANDARD AND POOR’S RATES
TABREED
Tabreed will distribute annual profits, or lease payments, to the
Sukuk SPV, which will service the coupon payments on the notes over
the first three years.
At maturity, Tabreed will buy back the cooling plants from the issuer
in exchange for shares in Tabreed.

18. STANDARD AND POOR’S RATES
TABREED
Standard and Poor’s stated that the Sukuk structure contained weaker
security features than what they have seen typically in senior Ijarah
Sukuk structures.
This included very broad events of default and a limited right to sell
the cooling plants upon an event of default.
This was in line with the subordination features of the Tabreed 08
Financing Corp. Ijarah Sukuk.

19. STANDARD AND POOR’S RATES
TABREED
Standard & Poor's assigned a high equity content to the notes
because they had the following positive characteristics:
The notes would mandatorily convert into ordinary shares of Tabreed within three
years and
Principal and interest payments were subordinated to all of Tabreed's other debt
obligations, unless expressly qualified as more junior, and currently rank senior
only to common shares.

20. STANDARD AND POOR’S RATES
TABREED
In their calculation of Tabreed's financial ratios, S&P classified the
whole principal outstanding of the notes as equity. Similarly, coupon
payments would be considered as dividends for the purpose of their
analysis. S&P expected the two-notch differential between the rating
on the proposed notes and the long-term corporate credit rating on
Tabreed to be maintained as long as the latter rating remained
investment grade in order to reflect:
The proposed notes' subordination and;
The market risk resulting from the relative evolution of the share price
and of the conversion ratio of the instrument.

21. STANDARD AND POOR’S RATES
TABREED
The instrument would be settled in shares in all cases, apart from
possible complete or partial cash settlement if Tabreed were to be
declared insolvent in court or if the shares potentially created were to
exceed the applicable foreign ownership threshold.
Both restrictions were imposed by laws and regulations in the country
of issuance, the UAE. Standard & Poor's considered these exceptions
as acceptable because they are appropriately remote and the
consequent cash claims on Tabreed would remain deeply
subordinated.
S&P regularly monitored the headroom under the foreign share
ownership rule, assuming all note-holders to be foreign, apart from
those duly registered as domestic.

22. STANDARD AND POOR’S RATES
TABREED
Possible excess foreign ownership would result in S&P reducing the
equity content of the instrument by the amount potentially created
above the threshold.
The issue would help increase the equity-like content in Tabreed's
financing structure. Standard & Poor's assessed the equity to be
created by the issuance of the notes, and their eventual conversion,
as permanent in nature, in the context of Tabreed's current financial
policy and development plans.
Despite this issuance, S&P expected Tabreed's leverage to remain
aggressive over the medium term.

23. STANDARD AND POOR’S RATES
TABREED
The servicing of the bond until conversion may not be deferred.
This is not a significant hurdle in our view of the equity content, due
to the short time to conversion.

24. STANDARD AND POOR’S RATES
TABREED
In fact, the Tabreed sukuk repaid in full its 06 Sukuk. The repayment
follows the completion of the Company’s recapitalization program on
1 April 2011.
The total amount paid today to certificate holders of the 06 Sukuk is
AED 735 million.
Waleed Al Mokarrab Al Muhairi, Chairman of Tabreed said: “The
strong capital structure that was put in place with the recapitalization
program underpins Tabreed’s long-term growth potential.

25. STANDARD AND POOR’S RATES
TABREED
The repayment of the 06 Sukuk today was contemplated in our
structuring of the recapitalisation program and improves the
Company’s overall financial position.”
The Sukuk 06 was launched in July 2006 and matured 20th July 2011.

26. THE END