Deals of the Year 2006 Handbook
Sitara Chemical Industries Privately
Placed Sukuk Issue
Standard Chartered Bank acted as the mandated lead
arranger and sole bookrunner for a PKR1,100 million
(US$18.3 million) local currency Sukuk issue for Sitara
Chemical Industries. This deal was completed in June 2006
and boasts double market firsts in Pakistan:
• First local currency Sukuk issued by a local corporate
in Pakistan.
• First Sukuk issue for Standard Chartered in the Pakistan
market.
Sitara Chemicals is one of Pakistan’s leading companies,
playing a vital role in the promotion of Islamic banking in the
country. Sitara Chemical Industries (SCIL) is the largest entity
of the Sitara Group in Pakistan and is the market leader in
the manufacture of Chlor-Alkali products with membrane
technology. SCIL was incorporated in 1981 and began
producing caustic soda in 1985. The plant’s capacity was
gradually increased over the years to the current level of
545 metric tonnes a day. In addition, various by-product
facilities have been added and expanded to cope with
growing demand. The company entered into the textile
spinning business in 1995. Its specialty chemicals and export
division was established in 2001 and the agri-chemicals
division was added in 2003.
SCIL has been striving for many years to get out of
conventional interest-based financial arrangements. The
company issued Musharakah term finance certificates
(MTFCs) at the end of 1999, and the proceeds were used
to repay the single interest-based long-term facility then
outstanding, which was otherwise repayable in installments
by the end of year 2007.
Since the first issue of MTFCs, the sponsors of the company
have achieved complete Islamization of their financial
dealings. The recent financing of the expansion project
through a PKR1.1 billion (US$18.12 million) local currency
(LCY) Sukuk issue was another milestone for the company,
as well as for Pakistan’s Islamic banking industry.
The structure and documentation of the Sukuk issue was
approved by Standard Chartered Bank’s Shariah Supervisory
Committee, which includes the two well-known scholars,
Sheikh Nizam Yaqubi and Dr Abu Sattar Abu Guddah.
The Sukuk issue had a tenor of 5 years and was structured
on the concept of Shirkat-ul-Milk, wherein the participants/
certificate holders, after acquiring beneficial ownership of
the project assets, entered into a Musharakah agreement
with Sitara Chemicals. The certificate holders provided
their share of the Musharakah assets to Sitara Chemicals
in quarterly rent payments. The rent payments were
benchmarked to KIBOR in addition to an agreed margin and
an incremental rent amount based on actual production.
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At the same time, Sitara Chemicals provided a one-way
purchase undertaking to the trustee (acting on behalf of the
certificate holders) to periodically purchase the certificate
holders’ share in the Musharakah so that the ownership of
the Musharakah assets is completely transferred to Sitara
Chemicals at the end of 5 years from the date of issue.
The concept of Sukuk is based on the premise that any
Islamic financing contract representing ownership in a
tangible asset can be bought or sold, and hence can be
securitized in the form of tradable securities. The Sukuk
issued to date in the GCC region have used Special Purpose
vehicles (SPV) as the issuing entity, where the ownership
of the assets remains with the SPV and the SPV issues the
Sukuk certificates to finance the investors’ contribution in
the assets.
“Since the first issue of
Musharakah term finance
certificates, the sponsors of
the company have achieved
complete Islamization of their
financial dealings”
The SCIL Sukuk issue differs from the capital market Sukuk
issued in the GCC region to date, mainly because it does
not involve the formation of an SPV, because the capital
markets laws in Pakistan presently do not allow SPVs to
acquire/own the beneficial or legal title of tangible assets.
In SCIL’s case, a trustee was appointed to act on behalf
of the participating banks (Sukuk holders). The Sukuk
certificates have been issued by SCIL as the issuer which
represents the certificate holders’ share in the Musharakah
assets. The legal title and ownership of the Musharakah
assets remains with SCIL, however, the beneficial ownership
is shared by both SCIL and the trustee (acting on behalf of
the certificate holders).
The SCIL Sukuk issue was a privately placed issue participated
in by five banks in Pakistan, namely the National Bank of
Pakistan, Allied Bank, Dubai Islamic Bank Pakistan, First
Habib Bank Modaraba and Meezan Bank as trustee to the
Sukuk issue.
The authors are from Standard
Chartered.
TERMSHEET

Sitara Chemical Industries

INSTRUMENT Privately placed Sukuk issue

ISSUER Sitara Chemical Industries(SCIL)

PRINCIPAL ACTIVITIES Manufacturing of chemicals (caustic soda)

BOARD OF DIRECTORS Chairman - Haji Bashir Ahmed

Chief executive - Muhammad Adrees
Javed Iqbal
Muhammad Anis
Imran Ghafoor
Haseeb Ahmed
Rukhsana Adrees
Nominee director - Rashid Zahir

DATE OF LISTING Not listed

ISSUE SIZE PKR1.1 billion (US$18.12 million)

DATE OF ISSUE June 2006

MATURITY June 2011

COUPON KIBOR + 165 basis points plus incremental rental. Incremental rental is linked to quarterly production level
agreed with SCIL and is subject to ceiling of 0.05%.

PAYMENT SCHEDULE In 12 equal quarterly installments after a grace period of 2 years from the date of issue.

AUTHORIZED PAID-UP PKR300 million (US$4.94 million)

CAP OF SCIL

IDENTIFIED ASSETS Project assets include but are not limited to all fixed assets of BMR and the expansion of the 210 metric
tonnes a day caustic soda plant located at 32 km, Faisalabad–Sheikhupura Road, Faisalabad (Musharakah
assets).

SOLE MANDATED LEAD Standard Chartered Bank

ARRANGER

ARRANGERS/ Standard Chartered Bank

MANAGERS

LEGAL COUNSEL Mohsin Tayebaly & Co.

FINANCIAL ADVISOR Standard Chartered Bank

GUARANTOR N/A

UNDERWRITERS N/A

TRUSTEE Meezan Bank

SHARIAH ADVISOR Standard Chartered Shariah Supervisory Committee

METHOD OF ISSUE Private placement to banks and financial institutions

PURPOSE OF ISSUE To finance the expansion of SCIL’s caustic soda plant

RATINGS Not rated

DIVIDEND PER UNIT N/A

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