University Speech on Goldman Sukuk

My first public comment on the GS Sukuk controversy after 6 month of writing that research note.

EuroWeek report:" This week Khnifer made his first public statement on the Goldman sukuk since publishing that report last year. Saudi Arabia's non-profit Alfaisal University, which was founded by a consortium of Harvard, Cambridge and MIT, invited Khnifer to speak at its College of Business as undergraduates undertook a case study on the structure of the Goldman deal.

"The Goldman sukuk experience is leading a lot of people in the industry to rethink what are our true values," he said. "It has done the market a big favour."

"Looking back now, I would say our industry has come a long way since," he added. "Now we are gradually hearing voices that call for institutional reform and closer scrutiny of sukuk issuance. Some scholars are calling for a robust framework of Shariah governance for the betterment of the industry. Sukuk arrangers, on the other hand, are taking seriously the reputational risk into consideration before accepting any mandate from a conventional lender."

"Scholars are now more than ever before under pressure from the public to scrutinise the transaction," he said. "All these are steps in the right direction."
Arabic: http://www.aleqt.com/2012/05/16/article_657244.html

Bloomberg interview with Khnifer over Goldman Sachs’ “Tawrruq” Sukuk

Financial Times interview ( http://bit.ly/rFMtXC ) Orignal research note on GS Sukuk ( http://bit.ly/ulykYj ) -Goldman Sachs Sukuk Row May Dent Industry Lure

Advisers including Riyadh-based Mohammed Khnifer of Edcomm Group Banker’s Academy in New York has also said it’s unclear on how Goldman will use the funds it raises.
Edcomm’s Khnifer, a sukuk structurer and strategist, drew parallels between Goldman Sachs’ Islamic bond structure and the reverse Tawarruq contract. He also says Goldman’s program doesn’t ensure the commodity murabaha certificates are only traded at par.
--------------
Bloomberg: ADIB Scholars See Goldman Sukuk Non-Islamic, Al-Eqtisadiah Says ( http://bloom.bg/xzBCeM )

=-=-=-=-=-= Subjective Op-ed from the industry =-=-=-=-=-=

1)GS "sacks of gold" Rocket Scientists Vs. one Saudi Sharia expert (http://bit.ly/tvYSZW )
2)Young Turks’ Reform movement Vs. Old Guards (http://bit.ly/tsTiQS )

3)Reforming the industry: Sheikh Edam M. Ishaq, said the Goldman case might lead to institutional reforms in the industry and closer scrutiny of sukuk issues in general. http://reut.rs/y8ZgEj
4- "This whole issue has really done the market a big favour," said one senior Islamic finance banker following the panel discussion. "It’s got all the questions out in the open very early in the process rather than at the point of issuance, which could have been a disaster." (Source: EuroWeek). http://bit.ly/ACiWlg

5-The research note I once wrote on the financially engineered "flawed" sukuk by Goldman Sachs was chosen by Zawya as a "Major event that shaped the Sukuk Industry in 2011 & expected to leave an impact which will direct the course of 2012" ( http://lnkd.in/hb2WkV )

6- Reuters Breakingviews:Goldman's First Islamic Foray too Clever by Half ( http://bit.ly/yv7R3i )
7-IFN:”The impending issuance has grabbed headlines; not just as it will mark the western banking giant's first foray into the Islamic debt market, but due to questions raised on the Shariah compliance of the facility's structure, including in much-publicized comments by Mr. Khnifer”.
8- Sachs & the triple entendre ! http://read.bi/z2lLJ4
9- مصرفيون إسلاميون تحت فوهة البركان http://tiny.cc/kxxsbw
=-=-=-=-=-= Update =-=-=-=-=-=

The Irish Stock Exchange is reportedly unable to stabilize the tradability at par. Disturbing because the message the industry was receiving from those behind GS deal is the assurance that any tradability would be at par. That means the “third flaw” can not be fixed at all. Further, there will be no control over the OTC transactions which means the sukuk could be traded at market value. Such tradability would make it non-Shariah. (EuroWeek story: http://goo.gl/3E5Hl )

Khnifer's Recent Interview with the FT- (Goldman runs into sukuk hurdle)

Financial Times--Tom Braithwaite in New York and David Oakley-December 15, 2011- The interview is based on a column I wrote ( http://bit.ly/ulykYj )- Bloomberg interview ( http://bit.ly/tz0eVR ).

"But other experts say the offering may flout the rules. Mohammed Khnifer, a Saudi Arabia-based sharia adviser, said there were at least three “flaws” in the structure that he believed would disqualify the offering from sharia compliance.
First, the prospectus suggested that underlying assets used in the sukuk could be sold to a third party; second that the funds raised could be directed to Goldman itself; and third that there was no guarantee the securities would trade at par. Any of those might breach the complex rules required to be compliant."

=-=-=-==-=-=-=-=-= Reuters =-=-=-==-=-=-=-=-=
Being quoted by Thomson Reuters:" Mohammed Khnifer, an Islamic finance analyst in Saudi Arabia, wrote that Goldman might use the proceeds of the sukuk to fund conventional banking activities." To continue: http://reut.rs/ukhMYb
Reuters España (http://bit.ly/wQqAcG ) Reuters France (http://bit.ly/xSt5xW )

=-=-=-==-=-=-= Financial Times =-=-=-==-=-=-=more interviews with
1) the German Language Edition ( FT Deutschland) http://bit.ly/umlOy5
2) Arabic Language Edition of FT (متخصص سعودي يشكك في صكوك جولدمان ساكس ) http://bit.ly/t0X96f

Disclosure of 3 Flaws in Goldman Sachs' $2 Billion Islamic Bonds

This is the Original column that was published on the 1st of Dec. which Ignited the "Great Debate" of the industry. To read Khnifer's Recent Interview with the Financial Times ( http://bit.ly/rFMtXC )- Bloomberg interview ( http://bit.ly/tz0eVR )

Goldman Sachs claims that its $2 billion Sukuk programme follows a Murabaha structure, Mohammed Khnifer claims otherwise – that it is nothing more than a
Reverse Tawarruq. What follows is an in-depth review of GS sukuk Offering Circular.
=-=-=-==-=-=-=More interviews with=-=-=-==-=-=-=
1) EuroWeek (http://bit.ly/s8cyaT ) & ( http://bit.ly/w0AVPQ)
2) The Islamic Globe (http://bit.ly/tqiPPs) ( http://bit.ly/tFLUpU)
3) Asharq Awsat مقابلة صحيفة الشرق الأوسط (http://bit.ly/rqrq1n )

EuroWeek: ADIB adds to Goldman sukuk heat with Shariah ruling
Provider: IFIS-February 15, 2012

Abu Dhabi Islamic Bank's Shariah board has rejected Goldman Sachs's proposed $2bn sukuk programme as unacceptable for Islamic investment, according to a leaked email seen by EuroWeek and one senior official at the Abu Dhabi bank.

مقابلتي مع صحيفة الاقتصادية حول صكوك جولدمان ساكس الامريكي التي يستهدف بها الخليجيين

Al-Eqtisadiah Saudi financial newspaper

Three interviews with Al-Eqtisadiah financial newspaper over Goldman Sachs sukuk can be read here:
بنك أبوظبي الإسلامي: صكوك «جولدمان ساكس» باطلة http://bit.ly/AALNhq
جولدمان يخطب ود الخليجيين بصكوك قيمتها 2مليار http://bit.ly/upiFcS
متخصص سعودي يشكك في صكوك جولدمان ساكس http://bit.ly/t0X96f

Uncovering the Financial Engineering of Saudi Arabia’s First Sovereign Sukuk

Al-Eqtisadiah Saudi Financial newspaper has allocated half a page for a research note I wrote in Arabic on GACA sukuk after de-structuring it.
Concise English summary is available at: http://bit.ly/GOi18V

هيكله هندسية: ٣ مطارات سعودية تضخ أرباح لحملة الصكوك حتى2022
http://bit.ly/AakEeM
يا صكوكنا السيادية .. دعوة للشفافية http://bit.ly/yYgK7R

How the Lack of Sukuk Human Capital Contributed to the Downfall of Saudi Issuance

Dow Jones Islamic Market Indexes Newsletter

Demystifying the cost of funding for Sukuk

According to Mohammed Khnifer, the Saudi banking industry has ignored the development of their internal Islamic Debt Market, causing universal banks to lose out on revenue that would have been earned had they built up a solid infrastructure of Sukuk specialists.

مقابلتي مع صحيفة الشرق الأوسط حول أهمية ايجاد جيل شباب خليجي متخصص في هيكلة الصكوك

Asharq Awsat newspaper

وفي هذا السياق، أوضح محمد الخنيفر، المتخصص في هيكلة الصكوك وخبير المالية الإسلامية لمجموعة"أدكوم أكاديمي" المصرفية، والتي تتخذ من أمريكا موقعا لها، أن تجاهل البنوك السعودية لهذا الأمر أدى إلى غياب إصدارات الصكوك الخاصة بالشركات، موضحا بعض المبررات لتباطؤ نمو سوق السندات الإسلامية، مستعرضا مجموعة من التوصيات التي ستسهم في حالة تطبيقها في جعل البنوك السعودية تفتح على نفسها بابا جديدا لجني إيرادات من الصكوك والتي كانت مغيبة عنهم.

The Case of Islamic Finance Graduates against HR: How the industry lost its Young Brave Blood !

Islamic Business & Finance Magazine

The Human Remains of Islamic finance (IF)

For the first time, HR executives are being identified as the main hurdle for the development & sustainability of the Human intellectual capital of IF

Exploring the Optimal Method of Penetration into the Saudi Islamic Investment Banking sector

Banker Middle East Magazine

This research paper highlights the potential which lies within the opportunities offered by the under-developed Saudi Islamic investment banking sector.

Voices of the Unheard - Salvaging the Next Generation of Islamic Bankers

Islamic Business & Finance Magazine

The SILENT GENERATION of unemployed Islamic financiers !
The Author warns the Islamic finance industry that it is about to lose its second generation of bankers
على طريقة رائعة أليخاندرو «الأشجار تموت واقفة».. صناعة المال الإسلامية على وشك أن تخسر جيلا بأكمله من المصرفيين الشباب
الجيل «الصامت» من المصرفيين الإسلاميين العاطلين .. خدعوهم بالتصريحات المنمقة عن مستقبل الصناعة وأداروا ظهورهم لهم بعد التخرج
http://www.al-jazirah.com/20120207/ec6d.htm

Inside the Meltdown from Islamic Finance Perspective

Global Islamic Finance Magazine

In the middle the heat of one of the greatest recorded financial meltdowns, and the breakdown of toxic assets, some small niche practitioners deliberated an important question: could this financial crisis have been averted, had the savvy Wall Street investment banks used the principles at the heart of Islamic finance.

This paper differs from the post-financial crisis research articles as it explains the credit crunch in a ‘SIMPLE” manner for those who just joined the investment Banking industry.

Certificate holders can take default worries off their shoulders with proper asset-backed Sukuk

Business Islamicia Magazine

The research explains how lawyers can structure Sukuk that can save certificate-holders from the repercussions of what
comes after default.
Asset protection of certificate-holders vis-a-vis their creditors can be achieved by adopting bankruptcy remoteness.

Toward a Universal Islamic Deposit Insurance System- Part (2)

Islamic Business & Finance

Last month, Mohammed Khnifer explained the concept of an Islamic deposit insurance (IDI) system, this month he explains how one might be created

Toward a Universal Islamic Deposit Insurance System- Part (1)

Islamic Business & Finance

The research highlights the types of deposits offered by Islamic banks such as  demand deposits, savings deposits, and general and special investment deposits. Then, it elaborates in details the technicality & mechanism of Islamic Deposit Insurance System & how it can be implemented.

The Untold Story of the Premium Collapse of Gulf Finance House

Business Islamicia Magazine

The Private Equity Calamity

This paper dissects the balance sheet and business model of Gulf Finance, and scrutinizes the existence of a "pre-exit premium" in their activities - on top of the usual exit fees and/or performance fees. The study suggests that this practice (uncommon even for conventional Private Equity businesses - much less for an Islamic Private Equity house) was pioneered by GFH and it is this same practice that brought them down to their knees. 

Sukuk Defaults Bring Innovative Restructuring Approaches to the Islamic Finance Industry

Islamic Business & Finance

Stand & Default: An exclusive detailed insight to sukuk restructuring after defaults. The author brings for the first time the three approved structuring approaches: 1) Debt/Equity SWAP 2) Extending Maturity, 3) Haircut

آليات إعادة هيكلة الََدَين الإسلامي ---- (صحيفة الجزيرة) السعودية
http://bit.ly/x5YGE0

Shocking: 21 defaulted sukuk cases in the last 20 months !

Business Islamicia Magazine

Research paper that lists the sukuk issuance where default event took place

When Sukuk Default - Asset Priority of Certificate-holders vis a vis Creditors

Opalesque Islamic Finance Intelligence

The research explains how lawyers can structure sukuk that can save certificate-holders from the repercussions of what comes after default. That is Asset Protection of Certificate-holders vis a vis Creditors.

The Rise and Fall of Gulf Finance House

Islamic Finance News

This paper dissects the balance sheet and business model of Gulf Finance, and scrutinizes the existence of a "pre-exit premium" in their activities - on top of the usual exit fees and/or performance fees. The study suggests that this practice (uncommon even for conventional Private Equity businesses - much less for an Islamic Private Equity house) was pioneered by GFH and it is this same practice that brought them down to their knees.

Managing Prudentially the Shariah compliance risk - Organized Tawarruq as an example

Opalesque Islamic Finance Intelligence

A novel research that deals with Maslaha (public interest) and the Permissibility of Organized Tawarruq. It also shed light on the Shariah Governance issue and the Shariah Risk. It is a “must” read for any Shariah Risk officer.

Sukuk- Building for a Solid Future.pdf

Mr. Khnifer was recently featured on the front page of the Financial Times & presented as ‘Shara Adviser’ ( http://bit.ly/rFMtXC ). He is mostly remembered in the industry as the man who ignited the “Great Debate” over Goldman Sachs’ Tawarruq Sukuk.

Final verdict: East Cameron sukuk holders win their case


Asset-based and asset-backed sukuk are contrasting
instruments with different consequences in the event of default, as Mohammed Khnifer explains in his analysis of distressed high-profile sukuk and the judgement on East Cameron Gas.
Also under the microscope is bankruptcy remoteness in sukuk issuance.