EI Sukuk Company Ltd (Emirates Islamic Bank) USD2.5 Billion - Prospectus

Transcription

1. BASE PROSPECTUS EI SUKUK COMPANY LTD . (incorporated as an exempted company in the Cayman Islands with limited liability) U.S.$2,500,000,000 Certificate Issuance Programme Under the certificate issuance programme described in this Base Prospectus (the "Programme"), EI Sukuk Company Ltd. (formerly EIB Sukuk Company Ltd.) (in its capacity as issuer and, in its capacity as trustee, the "Trustee"), subject to compliance with all relevant laws, regulations and directives, may from time to time issue trust certificates (the "Certificates") in any currency agreed between the Trustee and the relevant Dealer (as defined below). Certificates may only be issued in registered form. The maximum aggregate face amount of all Certificates from time to time outstanding under the Programme will not exceed U.S.$2,500,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement described herein), subject to increase as described herein. The Certificates may be issued on a continuing basis to one or more of the Dealers (each a "Dealer" and together the "Dealers") specified under "General Description of the Programme" and any additional Dealer appointed under the Programme from time to time by the Trustee, which appointment may be for a specific issue or on an ongoing basis. References in this Base Prospectus to the "relevant Dealer" shall, in the case of an issue of Certificates being (or intended to be) subscribed by more than one Dealer, be to all Dealers agreeing to subscribe to such Certificates. The Certificates will be limited recourse obligations of the Trustee. An investment in Certificates issued under the Programme involves certain risks. For a discussion of these risks, see "Risk Factors" beginning on page 1. Each Series (as defined herein) of Certificates issued under the Programme will be constituted by: (i) an amended and restated master trust deed (such master trust deed as modified and/or supplemented and/or further amended and restated from time to time, the "Master Trust Deed") dated 29 July 2020 entered into between the Trustee, Emirates Islamic Bank PJSC as obligor (the "Obligor" or "Emirates Islamic") and Citibank N.A., London Branch as delegate of the Trustee (in such capacity, the "Delegate"); and (ii) supplemental trust deed(s) (each, a "Supplemental Trust Deed") in relation to the relevant Series. Certificates of each Series (as defined herein) confer on the holders of the Certificates from time to time (the "Certificateholders") the right to receive certain payments (as more particularly described herein) arising from the assets of a trust declared by the Trustee in relation to the relevant Series over the Sukuk Portfolio (as defined herein). This Base Prospectus has been approved as a base prospectus by the Central Bank of Ireland (the "CBI") as competent authority under Regulation (EU) 2017/1129 (the "Prospectus Regulation"). The CBI only approves this Base Prospectus as meeting the standards of completeness, comprehensibility and consistency imposed by the Prospectus Regulation. Such approval should not be considered as an endorsement of the Trustee or the Obligor or of the quality of the Certificates. Investors should make their own assessment as to the suitability of investing in the Certificates. Application has been made to the Irish Stock Exchange plc trading as Euronext Dublin ("Euronext Dublin") for Certificates issued under the Programme during the 12 months from the date of this Base Prospectus to be admitted to the official list (the "Official List") and trading on its regulated market (the "Regulated Market"). Such approval relates only to Certificates which are to be admitted to trading on the Regulated Market or any other regulated markets for the purposes of Directive 2014/65/EC on markets in financial instruments, as amended ("MiFID II") (each such regulated market being a "MiFID Regulated Market") or which are to be offered to the public in any member state of the European Economic Area ("EEA") (each a "Member State") or the United Kingdom (the "UK"). This Base Prospectus has been approved by the Dubai Financial Services Authority (the "DFSA") under the DFSA's Markets Rule 2.6 and is therefore an Approved Prospectus for the purposes of Article 14 of the DFSA's Markets Law 2012. Application has also been made to the DFSA for Certificates issued under the Programme during the period of 12 months from the date of this Base Prospectus to be admitted to the official list of securities (the "DFSA Official List") maintained by the DFSA and to Nasdaq Dubai for such Certificates to be admitted to trading on Nasdaq Dubai. The DFSA does not accept any responsibility for the content of the information included in this Base Prospectus, including the accuracy or completeness of such information. The liability for the content of this Base Prospectus lies with the Trustee, the Obligor and such other persons, such as experts, whose opinions are included in the Base Prospectus with their consent. The DFSA has also not assessed the suitability of the Certificates to which this Base Prospectus relates to any particular investor or type of investor and has not determined whether they are Shari'a compliant. If you do not understand the contents of this Base Prospectus or are unsure whether the Certificates to which this Base Prospectus relates are suitable for your individual investment objectives and circumstances, you should consult an authorised financial advisor. The purchase of Certificates may involve substantial risks and are only for sophisticated investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and the merits of the investment in the Certificates. References in this Base Prospectus to Certificates being "listed" (and all related references) shall mean that such Certificates have been: (a) admitted to listing on the Official List and admitted to trading on the Regulated Market or, as the case may be, another MiFID Regulated Market; and/or (b) admitted to listing on the DFSA Official List and admitted to trading on Nasdaq Dubai. Notice of the aggregate face amount of the Certificates, periodic distribution amounts (if any) payable in respect of the Certificates, the issue price of the Certificates and certain other information which is applicable to each Tranche will be set out in a final terms document (the "applicable Final Terms") which, with respect to Certificates to be listed on Euronext Dublin, will be delivered to the CBI and Euronext Dublin, and which, with respect to Certificates to be listed on the DFSA Official List, will be delivered to the DFSA and Nasdaq Dubai. The Programme provides that Certificates may be listed or admitted to trading, as the case may be, on such other or further stock exchanges or markets as may be agreed between the Trustee and the relevant Dealer. The Trustee may also issue unlisted Certificates and/or Certificates not admitted to trading on any market. For the avoidance of doubt, the Trustee shall have no obligation to supplement this Base Prospectus after the end of its 12 month validity period. The Obligor has been assigned ratings of A+ by Fitch Ratings Limited. ("Fitch") with a stable outlook. The United Arab Emirates has been assigned a credit rating of Aa2 by Moody's Investors Service Singapore Pte. Ltd. ("Moody's Singapore"). The rating has been endorsed by Moody's Investors Service Limited ("Moody's") in accordance with Regulation (EC) No. 1060/2009, as amended (the "CRA Regulation"). A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. Moody's Singapore is not established in the European Union (the "EU") and has not applied for registration under the CRA Regulation. Each of Fitch and Moody's is established in the EU and is registered under the CRA Regulation and appear on the latest update of the list of registered credit rating agencies on the European Securities and Markets Authority ("ESMA") website at http://www.esma.europa.eu/page/List-registered-and-certified-CRAs. The Programme is expected to be rated A+ by Fitch. A Series of Certificates to be issued under the Programme may be rated or unrated. Where a Series is rated, such rating will be disclosed in the applicable Final Terms and will not necessarily be the same as the rating applicable to the Programme. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. The Trustee may agree with any Dealer that Certificates may be issued with terms and conditions not contemplated by the Terms and Conditions of the Certificates herein, in which event a supplemental Base Prospectus, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Certificates. The transaction structure relating to the Certificates (as described in this Base Prospectus) has been approved by the internal supervision committee of the Obligor (the "EI Shari'a Committee"), in liaison with the Global Shariah Supervisory Committee of Standard Chartered Bank. Prospective Certificateholders should not rely on such approvals in deciding whether to make an investment in the Certificates and should consult their own Shari'a advisers as to whether the proposed transaction described in such approvals is in compliance with their individual standards of compliance with Shari'a rules and principles. Arrangers Emirates Islamic Standard Chartered Bank Dealers Citigroup Emirates Islamic Dubai Islamic Bank Emirates NBD Capital Standard Chartered Bank The date of this Base Prospectus is 29 July 2020
2. IMPORTANT NOTICES This Base Prospectus complies with the requirements in Part 2 of the Markets Law (DIFC Law No. 1 of 2012) and Chapter 2 of the Markets Rules and comprises a base prospectus for the purposes of Article 8 of the Prospectus Regulation, and for the purpose of giving information with regard to the Trustee, the Obligor and the Certificates which, according to the particular nature of the Trustee, the Obligor and the Certificates, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Trustee and the Obligor. Each of the Trustee and the Obligor accepts responsibility for the information contained in this Base Prospectus. To the best of the knowledge of each of the Trustee and the Obligor the information contained in this Base Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. This Base Prospectus must be read and construed together with any supplements hereto and with any information incorporated by reference herein (see "Documents Incorporated by Reference") and, in relation to any Tranche of Certificates, should be read and construed together with the applicable Final Terms. Copies of the applicable Final Terms will be available from the registered office of the Trustee and the specified office set out below of the Principal Paying Agent (as defined below) save that, if the relevant Certificates are neither admitted to trading on a MiFID Regulated Market nor offered in the EEA or the United Kingdom (the "UK") in circumstances where a prospectus is required to be published under the Prospectus Regulation, the applicable Final Terms will only be obtainable by a Certificateholder holding one or more Certificates and such Certificateholder must produce evidence satisfactory to the Trustee or, as the case may be, the Principal Paying Agent as to its holding of such Certificates and identity. Certain information contained in "Risk Factors", "Description of the Group" and "The United Arab Emirates Banking Sector and Regulations" (as indicated therein) has been extracted from independent, third party sources. Each of the Trustee and the Obligor confirms that such information contained in this Base Prospectus has been accurately reproduced and that, as far as it is aware and is able to ascertain from information published by the relevant third party sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. The source of any third party information contained in this Base Prospectus is stated where such information appears in this Base Prospectus. The Dealers, the Agents and the Delegate have not independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Dealers, the Agents or the Delegate: (i) as to the accuracy or completeness of the information contained or incorporated in this Base Prospectus or any other information provided by the Trustee and the Obligor in connection with the Programme, the Certificates or their distribution; or (ii) for any acts or omissions of the Trustee, the Obligor or any other person in connection with the Base Prospectus or the issue and offering of any Certificates under the Programme. No person is or has been authorised by the Trustee and the Obligor to give any information or to make any representation not contained in or not consistent with this Base Prospectus or any other information supplied in connection with the Programme or the Certificates and, if given or made, such information or representation must not be relied upon as having been authorised by the Trustee, the Obligor, the Agents, the Delegate or the Dealers. Neither this Base Prospectus nor any other information supplied in connection with the Programme or any Certificates: (a) is intended to provide the basis of any credit or other evaluation; or (b) should be considered as a recommendation by the Trustee, the Obligor, the Delegate, the Agents or the Dealers that any recipient of this Base Prospectus, or any other information supplied in connection with the Programme or any Certificates, should purchase any Certificates. Each investor contemplating purchasing any Certificates should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Trustee and the Obligor. Neither this Base Prospectus nor any other information supplied in connection with the Programme or the issue of any Certificates constitutes an offer or invitation by or on behalf of the Trustee, the Obligor, the Delegate, the Agents or the Dealers to any person to subscribe for or to purchase any Certificates. -i-
3. No comment is made or advice given by the Trustee , the Obligor, the Delegate, the Agents or the Dealers in respect of taxation matters relating to any Certificates or the legality of the purchase of Certificates by an investor under applicable or similar laws. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISER, LEGAL ADVISER AND BUSINESS ADVISER AS TO TAX, LEGAL, BUSINESS AND RELATED MATTERS CONCERNING THE PURCHASE OF TRUST CERTIFICATES. Neither the delivery of this Base Prospectus nor the offering, sale or delivery of any Certificates shall in any circumstances imply that the information contained herein concerning the Trustee or the Obligor is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Programme is correct as of any time subsequent to the date indicated in the document containing the same. The Delegate, the Agents and the Dealers expressly do not undertake to review the financial condition or affairs of the Trustee or the Obligor during the life of the Programme or to advise any investor in the Certificates of any information coming to their attention. The Certificates have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"). Subject to certain exceptions, Certificates may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons (see "Subscription and Sale"). This Base Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any Certificates in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Base Prospectus and the offer or sale of Certificates may be restricted by law in certain jurisdictions. The Trustee, the Obligor, the Delegate, the Agent and the Dealers do not represent that this Base Prospectus may be lawfully distributed, or that any Certificates may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Trustee, the Obligor, the Delegate, the Agents or the Dealers which is intended to permit a public offering of any Certificates or distribution of this Base Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Certificates may be offered or sold, directly or indirectly, and neither this Base Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Base Prospectus or any Certificates may come must inform themselves about, and observe, any such restrictions on the distribution of this Base Prospectus and the offering and sale of Certificates. In particular, there are restrictions on the distribution of this Base Prospectus and the offer or sale of Certificates in the Cayman Islands, the Dubai International Financial Centre, Hong Kong, the Kingdom of Bahrain, the Kingdom of Saudi Arabia, Malaysia, the People's Republic of China, the EEA, Singapore, the State of Qatar (including the Qatar Financial Centre) the UAE (excluding the Dubai International Financial Centre), the UK and the United States (see "Subscription and Sale"). PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION Financial Statements This Base Prospectus incorporates by reference the following financial statements of the Group: • unaudited condensed consolidated interim financial statements as at and for the six months ended 30 June 2020 (which include comparative financial information as at and for the six months ended 30 June 2019) (the "H1 2020 Financial Statements"); • audited consolidated financial statements as at and for the financial year ended 31 December 2019 (the "2019 Financial Statements"); and • audited consolidated financial statements as at and for the financial year ended 31 December 2018 (the "2018 Financial Statements" and, together with the H1 2020 Financial Statements and the 2019 Financial Statements, the "Financial Statements"). The Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board, guidance of the Central Bank - ii -
4. and Islamic Shari 'a rules and principles and applicable requirements of the Federal laws relating to Islamic banks. The H1 2020 Financial Statements have been reviewed by Deloitte & Touche (M.E.) ("Deloitte") in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". The 2019 Financial Statements have been audited by Deloitte in accordance with International Standards on Auditing ("ISA"). The 2018 Financial Statements have been audited by Ernst & Young in accordance with ISAs. In this Base Prospectus: • financial information as at and for the six months ended 30 June 2020 and as at and for the six months ended 30 June 2019 has been derived from the H1 2020 Financial Statements; • financial information as at and for the financial year ended 31 December 2019 and for the financial year ended 31 December 2018 has been derived from the 2019 Financial Statements; and • financial information as at and for the financial year ended 31 December 2017 has been derived from the 2018 Financial Statements. The Group presents its financial statements in UAE dirham. The Group's financial year ends on 31 December and references in this Base Prospectus to 2019, 2018 and 2017 are to the 12-month period ending on 31 December in each year. Certain restatements and reclassifications From 1 January 2019, the Group adopted IFRS 16, "Leases" (which supersedes IAS 17, "Leases"). IFRS 16 introduces significant changes to lessee accounting since it removes the distinction between operating and finance leases under IAS 17 and requires a lessee to recognise a right-of-use asset and a lease liability at lease commencement for all leases (except short-term leases and leases of low value assets). The Group has adopted IFRS 16 on a modified retrospective basis and has not restated comparative figures for 2018. Accordingly, the comparative figures for 2018 as set out in the 2019 Financial Statements have not been adjusted and may not be directly comparable to the 2019 figures. For further information, please see Note 6 to the 2019 Financial Statements. Similarly, there were certain restatements and reclassifications in 2018 (principally attributable to the implementation of IFRS 9) in respect of which the comparative figures for 2017 as set out in the 2018 Financial Statements have not been adjusted and may not be directly comparable to the 2018 figures. For further information, please see Note 6 and Note 32(b) to the 2018 Financial Statements. For the above reasons, the information included in the 2019 Financial Statements may not be comparable to the information included in the 2018 Financial Statements. Alternative Performance Measures This Base Prospectus includes certain non-IFRS measures. Such measures constitute Alternative Performance Measures ("APMs") as defined in the European Securities and Markets Authority Guidelines on Alternative Performance Measures. Although not defined in accordance with IFRS, Emirates Islamic believes that such measures provide useful supplementary information to both investors and Emirates Islamic's management, as they facilitate the evaluation of company performance. Investors should note that, since not all companies calculate financial measures in the same manner, the APMs included in this Base Prospectus may not be comparable to measures used by other companies. Accordingly, the APMs included in this Base Prospectus should not be considered as substitutes for measures defined according to IFRS. The following table sets out the APMs included in this Base Prospectus (to the extent such measures are not defined according to IFRS and not included in the Financial Statements incorporated by reference into this Base Prospectus), together with the basis of calculating such APMs, the rationale for inclusion and the reconciliation of such measures to the Financial Statements. - iii -
5. Metric Calculation Rationale for inclusion Reconciliation to H1 2020 Financial Statements Reconciliation to 2019 Financial Statements Capital adequacy ratio Calculated in accordance with the requirements of the Central Bank . The capital adequacy ratio is the total regulatory capital divided by riskweighted assets at a given date Capital strength ratio comprising the ratio of a bank's capital to its risk in order to indicate its financial strength Total regulatory capital and risk weighted assets as derived from internal management records (as per Basel requirements) "Total regulatory capital" and "Riskweighted assets" as set out in Note 35 to the 2019 Financial Statements Cost to income ratio Calculated as general and administrative expenses divided by total operating income Efficiency ratio which is used to assess the amount spent to earn income "General and administrative expenses" and "Total operating income" as set out in the Group condensed consolidated interim income statement "General and administrative expenses" and "Total operating income" as set out in the Group consolidated income statement Earnings per share Calculated as profit for the year divided by issued capital Management performance and profitability measure which indicates the portion of distributable profit allocated to each outstanding share "Net profit/(loss) for the period" as set out in the Group condensed consolidated interim income statement and "Issued capital" as set out in the Group condensed consolidated interim statement of financial position "Profit for the year" as set out in the Group consolidated income statement and "Issued capital" as set out in the Group consolidated statement of financial position Financing/customer deposits Calculated as financing receivables divided by customer deposits Liquidity ratio which indicates how much of the customers' deposits are being used for financing (i.e., a bank's ability to fund its financing book through its customer deposit base) "Financing receivables" and "Customer deposits" as set out in the Group condensed consolidated interim statement of financial position "Financing receivables" and "Customer deposits" as set out in the Group consolidated statement of financial position Impaired financing receivables/gross financing receivables Calculated as impaired financing receivables divided by gross financing receivables (which is total financing receivables less deferred income) Asset quality ratio which indicates impaired financing receivables as a percentage of total financing receivables "Total of impaired Islamic financing receivables", "Total financing receivables" and "Deferred Income" as set out in Note 6 to the H1 2020 Financial Statements "Total of Impaired financing receivables", "Total financing receivables" and "Deferred income" as set out in Note 12 to the 2019 Financial Statements Net financing growth Calculated as the percentage increase in the sum of financing receivables over the period Financial ratio which measures a bank's ability to grow its financing book "Net financing receivables" as set out in Note 6 to the H1 2020 Financial Statements "Net financing receivables" as set out in Note 12 to the 2019 Financial Statements Net profit margin Calculated as net income from financing and investment products divided by the daily average of profit earning assets Profitability ratio which measures the income/spread a bank makes on its financing activities "Net income from financing and investment products" as set out in the Group condensed consolidated interim income statement and daily average of profit earning assets as derived from internal management records "Net income from financing and investment products" as set out in the Group consolidated income statement and daily average of profit earning assets as derived from internal management records Return on average shareholders' equity Calculated as profit for the year divided by the average of total equity Profitability ratio which measures the average return to shareholders for their investment and "Net profit/(loss) for the period" as set out in the Group condensed consolidated interim "Profit for the year" as set out in the Group consolidated income statement and "Total - iv -
6. Metric Calculation attributable to equity holders for two years Reconciliation to H1 2020 Financial Statements Reconciliation to 2019 Financial Statements income statement and "Total equity attributable to equity holders" as set out in the Group condensed consolidated interim statement of financial position equity attributable to equity holders" as set out in the Group consolidated statement of financial position Rationale for inclusion indicates how effectively shareholders' equity is being used to generate profits Certain Definitions and Conventions In this Base Prospectus, references to: • "Abu Dhabi", "Dubai" and "Sharjah" are to the Emirate of Abu Dhabi, the Emirate of Dubai and the Emirate of Sharjah, respectively; • "Central Bank" are to the UAE Central Bank; • "Emirates Islamic" are to Emirates Islamic Bank PJSC; • "ENBD" are to Emirates NBD Bank PJSC; • "GCC" are to the Gulf Co-operation Council; • "GDP" are to gross domestic product; • "Government" are to the Government of Dubai; • "Group" are to Emirates Islamic and its consolidated subsidiaries taken as a whole; • "MENA region" are to the Middle East and North Africa region; • "OPEC" are to the Organisation of the Petroleum Exporting Countries; and • "UAE" are to the United Arab Emirates. In addition, in this Base Prospectus, references to: (i) "AED" and "UAE dirham" are to the lawful currency of the UAE; (ii) "€" and "euro" are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty on the Functioning of the European Union; (iii) "RMB" and "Renminbi" are to the lawful currency of the People's Republic of China (the "PRC") that is deliverable offshore (for this purpose, PRC excludes the Hong Kong Special Administrative Region of the PRC, the Macau Special Administrative Region of the PRC and Taiwan); and (iv) "U.S.$" and "U.S. dollars" are to the lawful currency of the United States. The UAE dirham has been pegged to the U.S. dollar since 22 November 1980. The mid-point between the official buying and selling rates for the UAE dirham is at a fixed rate of AED 3.6725 = U.S.$1.00. All U.S. dollar equivalents of UAE dirham amounts appearing in this Base Prospectus have been calculated at this fixed exchange rate. The use of such fixed exchange rate should not be construed as a representation that UAE dirham amounts have been or could be converted into U.S. dollars at this or any other rate of exchange. Certain figures and percentages included in this Base Prospectus have been subject to rounding adjustments; accordingly figures shown in the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. The language of the Base Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. -v-
7. FORWARD-LOOKING STATEMENTS This Base Prospectus includes certain forward-looking statements . All statements other than statements of historical facts included in this Base Prospectus including, without limitation, any statements regarding the financial position of Emirates Islamic and/or the Group, or the business strategy, management plans and objectives for future operations of Emirates Islamic, may constitute forward-looking statements. Forwardlooking statements generally can be identified by the use of forward-looking terminology, such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "continue" or similar terminology. Although Emirates Islamic believes that the expectations reflected in the forward-looking statements included in this Base Prospectus are reasonable at this time, there can be no assurance that these expectations will prove to be correct. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements, or industry results, to be materially different from any expressed or implied by forward-looking statements. Forward-looking statements may be based on numerous assumptions regarding the present and future business strategies and the environment in which Emirates Islamic and/or the Group expects to operate in the future. Certain key factors that could cause Emirates Islamic's and/or the Group's actual results, performance or achievements to differ materially from the forward-looking statements included in this Base Prospectus are discussed in "Risk Factors". Forwardlooking statements speak only as at the date of this Base Prospectus and, subject as required by applicable law or regulation, Emirates Islamic expressly disclaims any obligation or undertaking to publicly update or revise any forward-looking statements in this Base Prospectus to reflect any change in the expectations of Emirates Islamic and/or the Group or any change in events, conditions or circumstances on which any forward-looking statements are based. Given the uncertainties of forward-looking statements, Emirates Islamic cannot assure potential investors that any projected results or events will be achieved and Emirates Islamic cautions potential investors not to place undue reliance on these statements. SUITABILITY OF INVESTMENTS The Certificates may not be a suitable investment for all investors. Each potential investor in Certificates must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (a) have sufficient knowledge and experience to make a meaningful evaluation of the Certificates, the merits and risks of investing in the Certificates and the information contained or incorporated by reference in this Base Prospectus or any applicable supplement; (b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Certificates and the impact the Certificates will have on its overall investment portfolio; (c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Certificates, including where the currency of payment is different from the potential investor's currency; (d) understand thoroughly the terms of the Certificates and be familiar with the behaviour of any relevant indices and financial markets; and (e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic and other factors that may affect its investment and its ability to bear the applicable risks. Some Certificates are complex financial instruments. Sophisticated institutional investors generally do not purchase complex financial instruments as standalone investments. They purchase complex financial instruments as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in Certificates which are complex financial instruments unless it has the expertise (either alone or with a financial adviser) to evaluate how the Certificates will perform under changing conditions, the resulting effects on the value of the Certificates and the impact this investment will have on the potential investor's overall investment portfolio. Legal investment considerations may restrict certain investments. The investment activities of certain investors are subject to investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent: (a) the Certificates are legal investments for it; (b) the Certificates can be used as collateral for various types of - vi -
8. financing and /or borrowing; and (c) other restrictions apply to its purchase or pledge of any Certificates. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of the Certificates under any applicable risk-based capital or similar rules. BENCHMARKS REGULATION Amounts payable on certain Certificates issued under the Programme may be calculated by reference to certain benchmarks. Details of the administrators of such benchmarks, including details of whether or not, as at the date of this Base Prospectus, each such administrator's name appears on the ESMA Benchmarks Register, are set out below (for definitions of the benchmarks set out below, see the definition of "Reference Rate" in the Conditions). Administrator appears on ESMA Benchmarks Register Benchmark Administrator AUD LIBOR As far as the Trustee and the Obligor are aware, the administrator has not yet been appointed No BBSW ASX Limited No CNH HIBOR Treasury Markets Association No EIBOR UAE Central Bank No EURIBOR European Money Markets Institute Yes, European Money Markets Institute is authorised under Article 34 of the Benchmarks Regulation HIBOR Hong Kong Treasury Markets Association No LIBID As far as the Trustee and the Obligor are aware, the administrator has not yet been appointed No LIBOR (including JPY LIBOR) ICE Benchmark Administration Limited Yes, ICE Benchmark Administration Limited is authorised under Article 34 of the Benchmarks Regulation LIMEAN As far as the Trustee and the Obligor are aware, the administrator has not yet been appointed No PRIBOR Czech Financial Benchmark Facility s.r.o. Yes, Czech Financial Benchmark Facility s.r.o is authorised under Article 34 of the Benchmarks Regulation SAIBOR Thomson Reuters No SHIBOR National Interbank Funding Centre No SIBOR ABS Benchmarks Administration Co Pte Ltd No TIBOR Ippan Shadan Hojin JBA TIBOR Administration No TRLIBOR Banks Association of Turkey No As at the date of this Base Prospectus, the administrators of AUD LIBOR, BBSW, CNH LIBOR, EIBOR, HIBOR, LIBID, LIMEAN, SAIBOR, SHIBOR, SIBOR, TIBOR and TRLIBOR are not included in ESMA's register of administrators under Article 36 of the Benchmarks Regulation. As far as the Trustee and Obligor are aware, the transitional provisions in Article 51 of the Benchmarks Regulation apply, such that ASX Limited, the Treasury Markets Association, the UAE Central Bank, Hong Kong Treasury Markets Association, Thomson Reuters, National Interbank Funding Centre, ABS Benchmarks Administration Co Pte Ltd, Ippan Shadan Hojin JBA TIBOR Administration and Banks Association of Turkey are not currently required to obtain authorisation or registration (or, if located outside the EU, recognition, endorsement or equivalence). STABILISATION In connection with the issue of any Tranche of Certificates, the Dealer or Dealers (if any) named as the Stabilisation Manager(s) (or persons acting on behalf of any Stabilisation Manager(s)) in the - vii -
9. applicable Final Terms may effect transactions with a view to supporting the market price of the Certificates at a level higher than that which might otherwise prevail . However, stabilisation may not necessarily occur. Any stabilisation action may begin on or after the issue date of the relevant Tranche of Certificates and, if begun, may cease at any time, but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Certificates and 60 days after the date of the allotment of the relevant Tranche of Certificates. Any stabilisation action must be conducted by the relevant Stabilisation Manager(s) (or persons acting on behalf of any Stabilisation Manager(s)) in accordance with all applicable laws and rules. MIFID II PRODUCT GOVERNANCE/TARGET MARKET The Final Terms in respect of any Certificates will include a legend entitled "MiFID II product governance" which will outline the target market assessment in respect of the Certificates and which channels for distribution of the Certificates are appropriate. Any person subsequently offering, selling or recommending the Certificates (a "distributor") should take into consideration the target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Certificates (by either adopting or refining the target market assessment) and determining appropriate distribution channels. A determination will be made in relation to each issue about whether, for the purpose of the Product Governance rules under EU Delegated Directive 2017/593 (the "MiFID Product Governance Rules"), any Dealer subscribing for any Certificates is a manufacturer in respect of such Certificates, but otherwise neither the Arranger nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose of the MIFID Product Governance Rules. NOTIFICATION UNDER SECTION 309B OF THE SECURITIES AND FUTURES ACT (CHAPTER 289 OF SINGAPORE) AS MODIFIED OR AMENDED FROM TIME TO TIME (THE "SFA") In connection with Section 309B of the SFA and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the "CMP Regulations 2018"), unless otherwise specified before an offer of Certificates, the Trustee has determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA), that the Certificates are "prescribed capital markets products" (as defined in the CMP Regulations 2018) and "Excluded Investment Products" (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products). VOLCKER RULE The Volcker Rule, which became effective on 1 April 2014, but was subject to a conformance period for certain entities that concluded on 21 July 2015, generally prohibits "banking entities" (which is broadly defined to include U.S. banks and bank holding companies and many non-U.S. banking entities, together with their respective subsidiaries and other affiliates) from: (i) engaging in proprietary trading, (ii) acquiring or retaining an ownership interest in or sponsoring a "covered fund", and (iii) entering into certain relationships with "covered funds". The general effects of the Volcker Rule remain uncertain; any prospective investor in the Certificates and any entity that is a "banking entity" as defined under the Volcker Rule which is considering an investment in the Certificates should consult its own legal advisors and consider the potential impact of the Volcker Rule in respect of such investment. If investment by "banking entities" in the Certificates is prohibited or restricted by the Volcker Rule, this could impair the marketability and liquidity of such Certificates. No assurance can be made as to the effect of the Volcker Rule on the ability of certain investors subject thereto to acquire or retain an interest in the Certificates, and accordingly none of the Trustee, the Obligor, the Delegate, the Agents, the Arrangers or the Dealers, or any of their respective affiliates makes any representation regarding: (a) the status of the Trustee under the Volcker Rule (including whether it is a "covered fund" for their purposes); or (b) the ability of any purchaser to acquire or hold the Certificates, now or at any time in the future. NOTICE TO RESIDENTS OF THE UNITED KINGDOM Any Certificates to be issued under the Programme which do not constitute "alternative finance investment bonds" ("AFIBs") within the meaning of Article 77A of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010 (as defined in the Financial Services and Markets Act 2000 (the "FSMA")) will represent interests in a collective investment scheme (as defined in the FSMA) which has not been authorised, recognised or otherwise approved by the UK Financial Conduct Authority. - viii -
10. Accordingly , this Base Prospectus is not being distributed to, and must not be passed on to, the general public in the UK. The distribution in the UK of this Base Prospectus, any Final Terms and any other marketing materials relating to any Certificates is being addressed to, or directed at: (a) if the Certificates are AFIBs and the distribution, if effected by a person who is not an authorised person under the FSMA, is being addressed to, or directed at only the following persons: (i) persons who are Investment Professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Financial Promotion Order"); (ii) persons falling within any of the categories of persons described in Article 49(2)(a)-(d) (high net worth companies, unincorporated associations, etc.) of the Financial Promotion Order; and (iii) any other person to whom it may otherwise lawfully be made in accordance with the Financial Promotion Order; and (b) if the Certificates are Non-Regulatory AFIBs and the distribution, if effected by a person who is an authorised person under the FSMA, is being addressed to, or directed at only the following persons: (i) persons falling within one of the categories of Investment Professional as defined in Article 14(5) of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (the "Promotion of CISs Order"); (ii) persons falling within any of the categories of person described in Article 22 (high net worth companies, unincorporated associations, etc.) of the Promotion of CISs Order; and (iii) any other person to whom it may otherwise lawfully be made in accordance with the Promotion of CISs Order. Persons of any other description in the UK may not receive and should not act or rely on this Base Prospectus, any Final Terms or any other marketing materials in relation to any Certificates. Prospective investors in the UK in any Certificates which are not AFIBs are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in such Certificates and that compensation will not be available under the UK Financial Services Compensation Scheme. Any prospective investor intending to invest in any investment described in this Base Prospectus should consult his professional adviser and ensure that he fully understands all the risks associated with making such an investment and that he has sufficient financial resources to sustain any loss that may arise from such investment. NOTICE TO RESIDENTS OF THE CAYMAN ISLANDS No invitation, whether directly or indirectly, may be made to the public in the Cayman Islands to subscribe for any Certificates and this Base Prospectus shall not be construed as an invitation to any member of the public of the Cayman Islands to subscribe for any Certificates. NOTICE TO RESIDENTS OF THE KINGDOM OF BAHRAIN In relation to investors in the Kingdom of Bahrain, Certificates issued in connection with this Base Prospectus and related offering documents must only be offered in registered form to existing account holders and accredited investors (each as defined by the Central Bank of Bahrain (the "CBB")) in the Kingdom of Bahrain where such investors make a minimum investment of at least U.S.$100,000 or any equivalent amount in another currency or such other amount as the CBB may determine. This Base Prospectus does not constitute an offer of securities in the Kingdom of Bahrain pursuant to the terms of Article (81) of the Central Bank and Financial Institutions Law 2006 (decree Law No. 64 of 2006). This Base Prospectus and any related offering documents have not been and will not be registered as a prospectus with the CBB. Accordingly, no Certificates may be offered, sold or made the subject of an invitation for subscription or purchase nor will this Base Prospectus or any other related document or material be used in connection with any offer, sale or invitation to subscribe or purchase Certificates, whether directly or indirectly, to persons in the Kingdom of Bahrain, other than to accredited investors (as such term is defined by the CBB) for an offer outside the Kingdom of Bahrain. The CBB has not reviewed, approved or registered this Base Prospectus or any related offering documents and it has not in any way considered the merits of the Certificates to be offered for investment, whether in or outside the Kingdom of Bahrain. Therefore, the CBB assumes no responsibility for the accuracy and completeness of the statements and information contained in this Base Prospectus and expressly disclaims any liability whatsoever for any loss - ix -
11. howsoever arising from reliance upon the whole or any part of the content of this Base Prospectus . No offer of Certificates will be made to the public in the Kingdom of Bahrain and this Base Prospectus must be read by the addressee only and must not be issued, passed to, or made available to the public generally. NOTICE TO RESIDENTS OF THE KINGDOM OF SAUDI ARABIA This Base Prospectus may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Rules on the Offer of Securities and Continuing Obligations issued by the Capital Market Authority of the Kingdom of Saudi Arabia (the "Capital Market Authority"). The Capital Market Authority does not make any representations as to the accuracy or completeness of this Base Prospectus, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this Base Prospectus. Prospective purchasers of the Certificates should conduct their own due diligence on the accuracy of the information relating to the Certificates. If a prospective purchaser does not understand the contents of this Base Prospectus, he or she should consult an authorised financial adviser. NOTICE TO RESIDENTS OF THE STATE OF QATAR The Certificates will not be offered, sold or delivered, at any time, directly or indirectly, in the State of Qatar (including the Qatar Financial Centre) in a manner that would constitute a public offering. This Base Prospectus has not been and will not be reviewed or approved by or registered with the Qatar Central Bank, the Qatar Stock Exchange, the Qatar Financial Centre Regulatory Authority or the Qatar Financial Markets Authority in accordance with their regulations or any other regulations in the State of Qatar (including the Qatar Financial Centre). The Certificates are not and will not be traded on the Qatar Stock Exchange. -x-
12. CONTENTS Page RISK FACTORS .......................................................................................................................................... 1 DOCUMENTS INCORPORATED BY REFERENCE ............................................................................. 23 STRUCTURE DIAGRAM AND CASHFLOWS ...................................................................................... 25 GENERAL DESCRIPTION OF THE PROGRAMME ............................................................................. 28 FORM OF THE TRUST CERTIFICATES ................................................................................................ 34 APPLICABLE FINAL TERMS ................................................................................................................. 35 TERMS AND CONDITIONS OF THE TRUST CERTIFICATES ........................................................... 42 USE OF PROCEEDS ................................................................................................................................. 82 DESCRIPTION OF THE TRUSTEE ......................................................................................................... 83 SELECTED FINANCIAL INFORMATION ............................................................................................. 85 DESCRIPTION OF THE GROUP ............................................................................................................. 90 MANAGEMENT AND EMPLOYEES ................................................................................................... 109 THE UNITED ARAB EMIRATES BANKING SECTOR AND REGULATIONS................................ 116 SUMMARY OF THE PRINCIPAL TRANSACTION DOCUMENTS .................................................. 128 TAXATION ............................................................................................................................................. 137 SUBSCRIPTION AND SALE ................................................................................................................. 140 GENERAL INFORMATION .................................................................................................................. 146 - xi -
13. RISK FACTORS Each of the Trustee and the Obligor believes that the following factors may affect its ability to fulfil its obligations in respect of the Certificates issued under the Programme . All of these factors are contingencies which may or may not occur and neither Obligor is in a position to express a view on the likelihood of any such contingency occurring. In addition, factors which are material for the purpose of assessing the market risks associated with the Certificates issued under the Programme are also described below. If any of the risks described below actually materialise, the Trustee's and/or the Obligor's business, results of operations, financial condition or prospects could be materially and adversely affected. If that were to occur, the trading price of the Certificates could decline and investors could lose all or part of their investment. Each of the Trustee and the Obligor believes that the factors described below represent all the material risks inherent in investing in the Certificates issued under the Programme, but the inability of the Trustee to pay any amounts on or in connection with any Certificate may occur for other reasons which may not be considered significant risks by the Trustee and/or the Obligor based on information currently available to them or which they may not currently be able to anticipate. Prospective investors should also read the detailed information set out elsewhere in this Base Prospectus and reach their own views prior to making any investment decision. Risks factors relating to the Group's business activities In the course of its business activities, the Group is exposed to a variety of risks, the most significant of which are market risks, liquidity risks, credit risks and operational risks. Although Emirates Islamic believes it has implemented appropriate policies, systems and processes to control and mitigate these risks (see further "Description of the Group – Risk Management"), investors should note that any failure to adequately control these risks, or predict unexpected market events that are beyond the control of the Group, could be greater than anticipated and could have a material adverse effect on the Group's reputation, business, results of operations, financial condition and prospects and thereby affect Emirates Islamic's its ability to perform its obligations under the Transaction Documents to which it is a party. The Group is exposed to market risks due to its operations as a financial institution The Group's operations expose it to market risks, which is the potential for adverse changes in the market value of portfolio and positions due to fluctuations in profit rates, exchange rates, equity prices, commodity prices, as well as in their correlation and implied volatility. Consistent with the Group's approach to strict compliance with Shari'a rules and principles, the Group does not engage in speculative foreign exchange transactions. However, the Group, in common with other financial institutions, is susceptible to changes in the macro-economic environment and the performance of financial markets generally. As at the date of this Base Prospectus, the global macro-economic climate remains volatile for a number of reasons, including volatile global interest rates and performance of debt and equity markets, international oil prices and the COVID-19 outbreak. Certain of these factors are set out below (see also "Risk Factors – Risk Factors Relating to the UAE and the Middle East"). A worsening of current financial market conditions could lead to further decreases in investor and consumer confidence, increased market volatility and greater economic disruption and, as a result, could have a material adverse effect on the Group's business, results of operations, financial condition and prospects irrespective of steps currently taken to adequately control these risks. Volatility in the global economic environment may adversely impact the Group's business, results of operations, financial condition and prospects As at the date of this Base Prospectus, global debt and equity markets have again been adversely impacted by the ongoing volatility in the macro-economic climate. Movements in global interest rates have continued to be unpredictable over the last few years for various politico-economic reasons (such as the United Kingdom referendum for leaving the European Union (the "EU"), the election of Donald J. Trump as the President of the United States, the U.S.-China trade war, the threat of (escalation of) conflict in the MENA region and failure of OPEC and certain non-OPEC ally countries (OPEC+) to agree oil production cuts). The decision of the U.S. Federal Reserve to increase U.S. overnight interest rates between December 2015 -1-
14. and December 2018 by an aggregate 225 basis points (in nine separate increments of 25 basis points each) exacerbated the reduced liquidity environment and contributed to a prevailing mood of economic uncertainty. These volatile market conditions have impacted investment markets both globally and in the UAE and have resulted in reduced liquidity, widening of credit spreads and lack of price transparency in credit and capital markets. The international equity markets, in particular, have been adversely impacted by the general economic slowdown as well as the volatility in the Chinese economy, where economic growth slowed during 2018 to 6.6 per cent. of GDP, representing a 28-year low (source: World Bank). Measures have been, and are being, taken globally to mitigate such volatility. In 2019, the U.S. Federal Reserve decreased U.S. overnight interest rates by an aggregate 75 basis points (in three separate increments of 25 basis points each) and, in March 2020, U.S. overnight interest rates were further reduced to near zero in response to the COVID-19 outbreak (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – The Group's business, results of operations, financial condition and prospects may be materially adversely affected by changes in the macro-economic environment following the COVID-19 outbreak"). However, there can be no assurance that such measures will provide interest rate stability. For instance, investor confidence in international debt and equity markets (and, in turn, the performance of those markets) could be adversely impacted by future political events. In particular, the impact of "Brexit" on the general political and macro-economic conditions in the United Kingdom and across the EU is expected to continue to be significant at least until the precise terms of the United Kingdom's exit from the EU (for example, the terms of a trade deal) become clearer. Similarly, the full impact of the COVID-19 outbreak on the global economy is yet to be established. Continued slowdown in the global economic environment, together with any reduction in governmental spending and the likely impact on the level of economic activity in the UAE and the wider MENA region could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. Oil price volatility and future currency de-pegging could adversely impact the Group's net profit margins and financing costs Dubai enjoys a relatively diverse economy, with the three largest contributors to Dubai's GDP at constant prices being wholesale and retail trade, transportation and storage and financial services and insurance (comprising 25.5 per cent., 12.7 per cent. and 10.3 per cent., respectively, of Dubai's GDP at constant prices in the first six months of 2019 (source: Gross Domestic Product at Constant Prices (preliminary estimates), Dubai Statistics Centre)). However, any significant reduction in international oil prices may have a negative impact on regional spending and liquidity and, consequently, is likely to affect Dubai's economy indirectly through its impact on the trade, construction, real estate, tourism and banking sectors in particular, given the openness of the economy which has no capital or exchange controls. For instance, international crude oil prices declined dramatically between July 2014 and January 2016 (falling by approximately 75 per cent. from a monthly average OPEC Reference Basket price per barrel of U.S.$107.89 in July 2014 to a monthly average price of U.S.$26.50 in January 2016). Notwithstanding the partial increase in global crude oil prices between 2017 to 2019 (from a yearly average OPEC Reference Basket price per barrel of U.S.$52.43 in 2017 to a yearly average price of U.S.$66.48 in 2019), the oil-producing economies of the GCC (including the UAE) have continued to experience the impact of such decrease in oil prices which resulted in budget deficits and a decrease in fiscal revenues. Government fiscal deficits have resulted in weakened net asset positions, larger external financing needs and/or continued lower government spending. This has resulted in the downgrading, or placing on "creditwatch", of a number of GCC sovereigns, including the Kingdom of Bahrain and the Sultanate of Oman. The OPEC Reference Basket price has again fallen significantly throughout 2020. In early March 2020, OPEC officials proposed a plan to the members of OPEC+ countries, including Russia, to cut global production by 1.5 per cent. No agreement was reached, ending a three-year partnership between OPEC and major non-OPEC oil exporters. This also resulted in OPEC+ failing to extend the agreement of cutting 2.1 million barrels per day that was set to expire at the end of March 2020. In March 2020, the Kingdom of Saudi Arabia announced that it would raise oil output and discount its oil in April 2020. As a result of the above factors and the COVID-19 outbreak weakening the demand for oil, the OPEC Reference Basket price fell significantly and, as at 1 May 2020, the OPEC Reference Basket price was U.S.$16.52. Furthermore, certain oil prices turned negative during April 2020 (with the West Texas Intermediate benchmark falling as low as minus U.S.$37.63 a barrel), as weakened demand as a result of the COVID-19 outbreak led to buyers being paid to take oil due to storage capacity concerns. However, in June 2020, OPEC and Russia -2-
15. agreed to extend their oil production cuts for an additional month until the end of July 2020 following an increase in the OPEC Reference Basket price to U .S.$33.69 as at 1 June 2020. In the UAE, the prevailing low oil price environment has stimulated a UAE Federal Government led policy of rationalisation of fiscal spending which, in turn, has led to an ongoing transformation within the UAE economy. The UAE Federal Government has scaled back capital transfers to government-related entities, reduced government investment, raised electricity and water tariffs and removed fuel subsidies. Further, with effect from 1 January 2018, the UAE Federal Government introduced a value-added tax regime in the UAE at a rate of 5 per cent. These significant fiscal reforms have become an integral part of a broader UAE Federal Government strategy aimed at reducing fiscal expenditure generally and fiscal dependency on hydrocarbon related revenues. When taken in totality with the ongoing oil price volatility and the diversion of significant fiscal revenues to the Saudi Arabian led military intervention in the Republic of Yemen since 2015 (see further "Risk Factors – Risk Factors Relating to the UAE and the Middle East – Political, Economic and Related Considerations"), the impact on the UAE economy since early 2015 has been, and is expected to continue to be, significant. This ongoing transformative process in the domestic economy could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. In response to the oil price volatility through 2015 and 2016, certain regional oil producing countries that had traditionally "pegged" their domestic currencies to the U.S. dollar faced pressure to remove these foreign exchange "pegs". During 2015, each of Kazakhstan and Azerbaijan chose to unwind the U.S. dollar peg of their domestic currencies. While the likelihood of the GCC states pursuing a similar course of action is unclear (the Central Bank has, as recently as June 2016, re-iterated its intention to retain the UAE dirham peg against the U.S. dollar), there remains a risk that any such future de-pegging by the GCC states (in the event that the current challenging market conditions or volatility in global crude oil prices persist for a prolonged period) would pose a systemic risk to the regional banking systems by virtue of the inevitable de-valuation of any such de-pegged currency against the U.S. dollar and the impact this would have on the open cross-currency positions held by regional banks, including the Group (which maintains its financial statements and reports its results in UAE dirham). Further, any de-pegging could adversely impact the Group's net profit margins and financing costs. The Group's business, results of operations, financial condition and prospects may be adversely affected by changes in the macro-economic environment following the COVID-19 outbreak The macro-economic environment (both globally and within the UAE) has also been materially affected by the novel coronavirus which causes the disease known as COVID-19, which was first identified in Wuhan, Hubei Province, China in December 2019. In response to the highly contagious and sometimes fatal COVID-19 that infected tens of thousands of people in China, the Chinese government imposed travel restrictions and quarantines to help control its spread. While the spread of COVID-19 has slowed in China, it has spread to many countries around the world. As it has spread, other countries, such as Iran, Italy, the United Kingdom and the United States, have also been similarly impacted. In March 2020, the United States, certain EU countries and countries in the Middle East, including the UAE, began imposing travel restrictions, as well as other restrictions such as quarantines and extended shutdowns of businesses, with the aim of reducing in-person interactions and controlling the spread of the outbreak. These measures have significantly reduced economic activity in many countries around the world. To-date, the economic impact of COVID-19 has included significant volatility in financial markets and reduced global liquidity and investment. It is currently unclear how long these restrictions will be in place and what their ultimate impact will be on global and local economies. In response to the impact of the COVID-19 outbreak on their domestic economies, various governments around the world have announced fiscal stimulus packages and numerous central banks have implemented interest rate cuts. On 3 March 2020, the U.S. Federal Reserve reduced its target range for the federal funds rate from 1.50 to 1.75 per cent. to 1.00 to 1.25 per cent. and, on 15 March 2020, reduced this further to zero to 0.25 per cent. On 16 March 2020, the Central Bank reduced the interest rate applicable to one week certificates of deposit ("CDs") by 75 basis points from 1.00 per cent. to 0.25 per cent. and reduced rates applicable to the Interim Marginal Lending Facility (the "IMLF") and the Collateralised Murabaha Facility by 50 basis points. The Central Bank also issued directions to UAE banks for protecting impacted bank customers (for instance, through temporary profit/interest deferrals and reduction of fees). In 2020, The Higher Shari'ah Authority at the Central Bank (the "HSA") issued Resolution No.82/2/2020 concerning COVID-19. For further information, please see "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – COVID-19" and "The United Arab Emirates Banking Sector and Regulations -3-
16. – Recent Trends in Banking – Targeted Economic Support Scheme". While the European Central Bank has not yet cut its base rate, in March 2020 it announced a stimulus package to support the Euro area financial system. Further announcements could be forthcoming and it is unclear what impact these measures will ultimately have on their respective economies. Moreover, a prolonged implementation of such measures may affect the banking sector adversely. For instance, the Central Bank's interest rate reduction in respect of one week CDs and its directions to banks in respect of temporary profit/interest deferrals and reduction of fees for affected customers may affect banks' profitability (although, simultaneously, the Central Bank has reduced rates applicable to the IMLF and the Collateralised Murabaha Facility and implemented a Targeted Economic Support Scheme ("TESS") which includes measures to support banks' liquidity). On 26 March 2020, S&P Global Ratings revised its rating outlook from stable to negative for five UAE banks on the basis of, amongst other factors: (i) reduced activity due to COVID-19 exerting significant pressure on the UAE economy which may result in financing/loan/asset quality weakening and an increase in the cost of risk and therefore hamper banks' profitability; and (ii) implementation of TESS may delay the full recognition of asset quality deterioration at UAE banks and the relaxation of certain prudential requirements under TESS may lead to lower recognition and disclosure of problematic assets. In response to this outbreak, the Group has, on a temporary basis, effected certain branch closures, reduced staff attendance at the branches that continue to operate and implemented working-from-home regimes and processes. The Group has also implemented repayment holidays/deferrals and fee waivers in accordance with the Central Bank's directions. Although the Group has provided for an additional expected credit loss ("ECL") due to increased downturn weighting of the macro-economic scenario resulting from the COVID-19 outbreak, the related estimates and judgments are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected and the impact could be significantly greater than currently envisaged by Emirates Islamic. Any of these factors could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. The Group is exposed to liquidity risks due to its operations in the global financial markets Liquidity risk refers to the inability of the Group to fund an increase in assets and meet obligations as they become due (structural funding risk) or the inability to convert assets into cash at reasonable prices (market liquidity risk). The risk arises from mismatches in the amount and timings of cash flows. Liquidity risk can be caused by market disruptions or credit downgrades which may impose constraints on certain sources of funding. In the second half of 2008, a liquidity crisis arose in the global credit markets due to a large number of obligor defaults in the sub-prime mortgage loan market in the United States. This crisis expanded to affect all levels of the international economy. In particular, and in part reflecting the effects of the global economic crisis, the UAE financial markets experienced comparatively reduced levels of liquidity from the third quarter of 2008 and throughout 2009. Liquidity is essential to the performance of the banking sector and the business of the Group and, during this period, a number of measures were taken in an attempt to improve the liquidity levels in the UAE by the UAE Ministry of Finance and the Central Bank, including, but not limited to, regular contact and intervention with respect to UAE banks to provide liquidity to the market (UAE Ministry of Finance deposits and Central Bank funding support). While the liquidity situation in the UAE improved from 2010 to 2014, it again deteriorated in 2015 and 2016 as the system experienced a decrease in the level of government deposits and increased competition for liquidity from regional banks (which resulted in an increase in the financing/loan to deposit ratio across the UAE banking system), before improving again in 2017 and 2018. Whilst the Group does not materially rely on government deposits, and generally enjoys healthy levels of liquidity, there is no guarantee that this trend will persist or that any improvement in liquidity will continue in the future. For instance, the ongoing macro-economic volatility poses, and could continue to pose, a material challenge to regional and global liquidity (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution"). -4-
17. In response to the COVID-19 pandemic , the UAE Central Bank implemented the TESS which, amongst other things, provides UAE banks with access to zero cost funding with a view to improving market liquidity (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Targeted Economic Support Scheme"). Any future constraints on liquidity could result in less favourable credit ratings, higher funding costs and less accessible funds for the Group and could therefore have a material adverse effect on the Group's business, results of operations, financial condition and prospects. Credit rating downgrades may adversely affect the Group's ability to raise capital and the market value of Certificates As at the date of this Base Prospectus, Emirates Islamic has been assigned a long-term foreign currency issuer default rating of A+ by Fitch. This credit rating is intended to measure Emirates Islamic's ability to meet its debt obligations as they mature and is an important factor in determining Emirates Islamic's (and the Group's) cost of financing. Emirates Islamic's ratings are in line with ENBD's credit ratings since Fitch considers Emirates Islamic an integral subsidiary of ENBD. Emirates Islamic's ratings could therefore be affected by any changes in the ratings of ENBD or of the UAE. The UAE has been assigned a long-term credit rating of Aa2 by Moody's Investors Service Singapore Pte. Ltd principally on the basis of the assumption that the obligations of the UAE Federal Government will be unconditionally supported by Abu Dhabi. Any actual or anticipated changes in Emirates Islamic's credit ratings (including due to any actual or anticipated changes in the credit ratings of ENBD or the UAE) could constrain Emirates Islamic's (and the Group's) ability to raise capital and may affect the market value of any Certificates issued under the Programme. The Group is exposed to credit risks due to its financing and investment activities Credit risk is the risk that any of the Group's customers, clients or market counterparties fail to fulfil their contractual obligations to the Group resulting in a financial loss to the Group. For the Group, credit risk arises mainly from interbank, corporate, commercial and consumer financing receivables, and financing commitments arising from such financing activities, but can also arise from credit enhancement provided, such as Shari'a compliant credit derivatives (Shari'a compliant credit default swaps), financial guarantees, letter of credit, endorsement and acceptances. The Group is also exposed to credit risks arising from investments in financing securities and Shari'a compliant derivatives as well as settlement balances with market counterparties and reverse repurchase agreements. Credit risks could arise from a deterioration in the credit quality of specific counterparties of the Group, from a general deterioration in local or global economic conditions or from systemic risks within the financial systems, all of which could affect the recoverability and value of the assets of the Group and therefore subject the Group to an increase in the provisions for the impairment of its assets and other credit exposures. For instance, small and medium-sized enterprises ("SMEs") in the UAE experienced a severe economic downturn in 2016. As a result, creditors to such SMEs (such as the Group) were subject to an increased risk of default. As a remedial measure, the UAE introduced new bankruptcy laws in order to minimise "skip" risk, particularly for SME businesses run by non-UAE nationals. More recently, the COVID-19 outbreak has resulted in a number of measures being implemented by the Central Bank which may impact the Group (see "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – COVID-19" and "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Targeted Economic Support Scheme"). As at the date of this Base Prospectus, the prevailing unstable macro-economic climate has prompted reduced fiscal budgets and public spending plans in recent years in the UAE and across the GCC economies and customers and counterparties may again face similar challenges (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution"). The Group may therefore experience a higher level of credit defaults (including non-performing financings and consequential increases in impairment allowances for doubtful financings and advances) by the Group's customers and counterparties which could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. Although the Group has experienced improving credit quality ratios in recent years, the current uncertainty in the global markets could have a material adverse effect on its financial condition, prospects and results of operations. For example, the Group increased its ECL coverage, through higher provisioning, in the six months ended 30 June 2020 to address expected increases in ECL in 2020 as a result of the COVID-19 -5-
18. pandemic . However, uncertainty remains as to the full extent of the impact of COVID-19 on credit quality and further provisioning may be required in subsequent financial periods. Concentrations in financing activity, industry sectors and geographical locations could adversely affect the Group's business, results of operations, financial condition and prospects Concentration risk is the risk that accrues on the Group as a result of lack of diversification in its portfolio. This risk arises when a number of counterparties are engaged in similar business activities or activities in the same geographic region or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations in the Group's financing receivable and deposit portfolio subject it to risks from default by its larger obligors, from exposure to particular sectors of the UAE economy and from withdrawal of large deposits. The Group's financing receivables portfolio shows geographic, industry and obligor concentration: • the Group's financing receivable and deposit portfolio is concentrated, geographically, in the UAE. As at 30 June 2020, 95.3 per cent. of the Group's net financing receivables and 98.1 per cent. of the Group's total deposits (comprising due to banks and customer deposits) were attributable to the UAE; • 56.2 per cent. of the Group's net financing receivables as at 30 June 2020 were attributable to its consumer banking customers; • the Group's 10 largest private sector obligors (which excludes those obligors which are either wholly or majority owned by the Government or by H.H. Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai) represented 11.4 per cent. of the Group's total gross financing receivables as at 30 June 2020. As at 30 June 2020, the Group's largest funded exposure to a private sector obligor was AED 686.3 million, which constituted 1.6 per cent. of its total gross financing receivables as at that date and 7.7 per cent. of its total regulatory capital as at that date (total regulatory capital being AED 8.9 billion as at 30 June 2020); and • in terms of industry concentration of the Group's total financing receivables, as at 30 June 2020, personal finance accounted for 57.2 per cent., manufacturing and trade together accounted for 18.7 per cent., construction and real estate together accounted for 9.8 per cent. and financial institutions and investment companies accounted for 2.6 per cent. The Group is therefore exposed to risks arising from a downturn in the fortunes of any of the Group's obligors or in the regions or sectors in which they operate. For instance, a downturn in the UAE economy could have a material adverse effect on the Group's business, results of operations, financial condition and prospects (see also "Risk Factors – Risk Factors Relating to the UAE and the Middle East"). Further, although Emirates Islamic considers that the Group has adequate access to sources of funding, the withdrawal of a significant portion of any large deposits could have a material adverse effect on the Group's business, results of operations, financial condition and prospects (including its ability to meet the Central Bank target stable resources ratio or eligible liquid asset ratio (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Liquidity")). Similarly, any unfavourable developments in any of the industry sectors to which the Group has significant exposure could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. As an example, as at 30 June 2020, construction and real estate accounted for 1.6 per cent. and 8.1 per cent., respectively, of the Group's total financing receivables. The Group's total funded construction and real estate exposure was AED 4,504.3 million as at 30 June 2020. Although Dubai witnessed increased activity across all segments of the real estate market since 2013 due to favourable rebalancing of the underlying demand/supply dynamics and improved investor interest, more restrictive mortgage regulations and higher transaction taxes introduced during 2014 contributed to a reduction of activity in the real estate market. Slower price growth in the real estate market became evident from April 2014, as the stronger U.S. dollar contributed to weaker demand from foreign investors. According to Cavendish Maxwell's property monitor report, apartment and villa/townhouse prices in Dubai registered a 12 month average decline of 16.5 per cent. from December 2018 to December 2019. The challenging economic situation since mid-2014, coupled with the strength of the U.S. dollar, may have affected demand from investors. Any further real estate correction or default of the Group's main real estate-related clients in the future could have a material adverse effect on the Group's business, results of operations, financial -6-
19. condition and prospects . The Group's risk management policies and internal controls may not be effective in all circumstances and may leave the Group exposed to operational risks, which could result in material losses Operational risk is the risk of losses resulting from inadequate or failed internal processes and systems, human error or external events. It thus excludes strategic and reputation risks but includes legal and regulatory risks. Operational risks and losses can result from fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorisation, lapses in any operational controls, any failure of internal systems or equipment, any failure of external systems (e.g., those of the Group's counterparties or vendors) or occurrence of natural disasters. The Group may also face legal risks from private actions brought against it. Operational risks and losses could also arise from the Group's failure to comply with applicable conduct of business rules (including financial crime risk, i.e., know your customer ("KYC"), anti-money laundering ("AML"), counter-terrorism financing ("CTF") laws and sanctions policies) and/or regulatory requirements. Although the Group has implemented risk controls and loss mitigation strategies and substantial resources are devoted to developing efficient policies and procedures in order to minimise losses and ensure compliance with Basel III requirements, it is not possible to eliminate any of the operational risks entirely. Should any of the foregoing risks materialise, this could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. This risk factor should not be taken as implying that the Trustee or Emirates Islamic will be unable to comply with their obligations as a company with securities: (i) admitted to the CBI's Official List; and/or (ii) admitted to the DFSA's Official List. Changes in laws, regulations and their interpretation and enforcement may limit the Group's ability to invest or raise capital Emirates Islamic is subject to a number of prudential and regulatory controls designed to maintain the safety and soundness of banks, ensure its compliance with economic, social and other objectives and limit its exposure to risk. These regulations include UAE federal laws and regulations (particularly those of the UAE Federal Government and the Central Bank (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking")). Such regulations may, amongst other things, limit Emirates Islamic's ability to increase its financing receivable portfolios or raise capital or may increase its cost of doing business. Any changes the laws and regulations and/or the manner in which they are interpreted or enforced could also have a material adverse effect on the Group's business, results of operations, financial condition and prospects. For instance, Federal Law No. 14 of 2018 (effective from 23 September 2018 ) (the "2018 Federal Law") indicates that the Central Bank shall establish a resolution framework for financial institutions, pursuant to which, in the case of a deficiency in an institution's financial position, the Central Bank may take certain actions for the protection of the concerned institution and its depositors. These may include (without limitation) requesting a court to liquidate or declare bankrupt such institution, or prepare a plan for transfer of its assets and liabilities, in accordance with established laws. The timing and content for any such framework are uncertain. The exercise (or perceived likelihood of exercise) of any such action by the Central Bank or any suggestion of such exercise could materially adversely affect the value of any Certificates issued under the Programme and could lead to holders losing some or all of their investment in the Certificates. Similarly, any failure by Emirates Islamic to comply with the relevant qualitative and quantitative liquidity requirements or maintain required regulatory capital ratios could result in administrative actions, sanctions or fines against Emirates Islamic (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking"). Although Emirates Islamic works closely with its regulators and continually monitors the situation, future changes in regulation, fiscal or other policies cannot be predicted and are beyond its control. The Group may be subject to cyber-security attacks In common with other financial institutions based in the GCC and elsewhere in the world, the threat to the security of the Group's information and customer data from cyber-attacks continues to grow at pace. -7-
20. Activists , rogue states and cyber criminals are amongst those targeting computer systems around the world. Risks to technology and cyber-security change rapidly and require continued focus and investment. Given the increasing sophistication and scope of potential cyber-attack, it is possible that future attacks may lead to significant breaches of security. Failure to adequately manage cyber-security risk and continually review and update current processes in response to new threats could disrupt the Group's business, result in the disclosure of confidential information, create significant financial and/or legal exposure and damage the Group's reputation and/or brands, which could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. The Group is reliant on key personnel The Group's ability to maintain and grow its business will depend, in part, on its ability to continue to recruit and retain qualified and experienced banking and management personnel. The Group may face challenges in recruiting and retaining qualified personnel to manage its respective business from time to time and, if it is to continue to grow, will need to continue to increase its employee numbers. Additionally, in 2017, the Central Bank introduced a point based system which encourages the development and deployment of UAE nationals in critical roles at a variety of levels (see further "The United Arab Emirates Banking Sector and Regulations – Characteristics of the Banking System – Expatriate workforce"). In common with other banks in the UAE, Emirates Islamic experiences a shortage of, and competition to recruit and retain, qualified UAE national employees. If Emirates Islamic is unable to meet or exceed the UAE Federal Government's recommended policy for recruiting UAE nationals, it may be subject to legal penalties including with respect to its current licences, and may be prevented from obtaining additional licences necessary in order to allow it to expand its business. While Emirates Islamic currently meets (and exceeds) the UAE Federal Government's "Emiratisation" requirements (see further "Management and Employees – Employees – Emiratisation") and believes that it has effective staff recruitment, training and incentive programmes in place, if it was unable to retain key members of its senior management and/or remove under-performing staff and/or hire new qualified personnel in a timely manner, this could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. The increasingly competitive environment in the UAE banking industry may adversely affect the Group's business, results of operations, financial condition and prospects Emirates Islamic faces competition in all of its business areas from domestic and foreign banks operating in the UAE. Moreover, there are an increasing number of Islamic banks and other institutions offering Islamic financial products and services within the UAE. Other financial institutions may also consider offering Shari'a compliant products. To the extent Shari'a compliance is not a key concern for customers, Emirates Islamic would also face competition from conventional banks. Emirates Islamic's main competitors in terms of product offering and customer segments are Abu Dhabi Islamic Bank PJSC, Dubai Islamic Bank PJSC and Sharjah Islamic Bank PJSC in the Islamic banking sector as well as from conventional banks such as Commercial Bank of Dubai PJSC, Mashreqbank psc and National Bank of Ras Al Khaimah PJSC (RAKBank) (see further "Description of the Group – Competition"). The UAE could be viewed as an over-banked market, even by regional standards. As at 31 March 2020, 48 commercial banks (comprising 21 local banks and 27 foreign commercial banks) operated in the UAE (source: Statistical Bulletin March 2020 (preliminary data), Central Bank), serving a population estimated to be in the region of 9.7 million in mid-2019 (source: Statistical Yearbook 2019 edition, United Nations Department of Economic and Social Affairs – Statistics Division). Although historically there has been little impetus for consolidation, there have been some significant mergers in recent years in the UAE banking sector (see further "The United Arab Emirates Banking Sector and Regulations – Characteristics of the Banking System – Historic lack of consolidation"). Should such consolidation continue, it could lead to a significant alteration of the competitive environment with fewer, larger locally incorporated banks competing for the larger financing transactions in the region with the foreign banks (which have tended to have comparatively larger franchises) and enabling such local banks to have access to greater infrastructure and resources to absorb capital costs, such as information technology ("IT") system development. Moreover, the banking market in the UAE has generally been a relatively protected market with high regulatory and other barriers to entry for foreign financial institutions. However, should some of these barriers be removed or eased in the future, either voluntarily or as a result of the UAE's membership of the World Trade Organisation, the GCC or any other similar entities which require greater economic -8-
21. liberalisation , it is likely to lead to a more competitive environment for Emirates Islamic and other domestic financial institutions. Any such increase in competition or significant alteration of the competitive environment could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. The interests of the Group's controlling shareholder, and its ability to control actions of the Group, may conflict with the commercial interests of the Group, which may also conflict with the interests of the Certificateholders As at the date of this Base Prospectus, ENBD holds a 99.9 per cent. stake in Emirates Islamic. In turn, as at the date of this Base Prospectus, the Investment Corporation of Dubai holds a 55.75 per cent. stake in ENBD. The Investment Corporation of Dubai is wholly-owned by the Government. By virtue of its indirect shareholding in Emirates Islamic, the Government has the ability to influence Emirates Islamic's business through its ability to control actions that require shareholder approval. If circumstances were to arise where the interests of the Government conflict with the interests of the Certificateholders, Certificateholders could be disadvantaged by any such conflict. Neither the Government nor the UAE Federal Government are under any obligation to invest in, make deposits with, do business with or otherwise support Emirates Islamic. The Government and the UAE Federal Government may, whether directly or through government-owned entities, at any time and for any reason, dispose of its investments in, withdraw its deposits from, cease to do business with or otherwise cease to support Emirates Islamic. The reduction or elimination of governmental support could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. The Government does not explicitly or implicitly guarantee the financial obligations of Emirates Islamic (including in respect of Emirates Islamic's obligations under the Transaction Documents to which it is a party) nor does it, like any other shareholder (acting through the Investment Corporation of Dubai), have any legal obligation to provide any support or additional funding for any of Emirates Islamic's future operations. Non-compliance with resolutions of the HSA and/or the EI Shari'a Committee may result in financial loss or reputational damage for Emirates Islamic Emirates Islamic is required to adhere to: (i) resolutions, fatwas, regulations, and standards issued by the HSA in relation to licensed activities and businesses of Islamic Financial Institutions ("HSA's Resolutions"); and (ii) resolutions and fatwas issued by the EI Shari'a Committee in relation to licensed activities and businesses of Emirates Islamic (the "Committee's Resolutions"), provided they do not contradict with HSA's Resolutions. To the extent that any of the banking activities of Emirates Islamic are, or are perceived to be, non-compliant with Islamic Shari'a in accordance with the HSA's Resolutions and/or the Committee's Resolutions, there is a risk that Emirates Islamic could incur financial loss and/or suffer reputational damage. Risk factors relating to the UAE and the Middle East The majority of the Group's operations and assets are in the UAE and, accordingly, its business may be affected by the financial, political and general economic conditions prevailing from time to time in the UAE and/or the Middle East generally and thereby affect Emirates Islamic's its ability to perform its obligations under the Transaction Documents to which it is a party (see also "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution"). These markets are subject to greater risks than more developed markets, including in some cases significant legal, economic and political risks. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in the light of those risks, their investment is appropriate. Political instability and economic volatility may adversely affect the Group's business While the UAE has historically enjoyed significant economic growth and relative political stability, there can be no assurance that such growth or stability will continue. Investors should note that the Group's business and financial performance may be affected by the financial, political and general economic -9-
22. conditions prevailing from time to time in the UAE and the Middle East . This is particularly so in light of significant adverse financial and economic conditions experienced worldwide commencing in early 2008. Since that time, there has been a slowdown or reversal of the high rates of growth that had been experienced by many countries within the GCC and the UAE, especially in Dubai. Consequently, certain sectors of the GCC economy such as financial institutions that had benefitted from such high growth rates could be adversely affected by any future slowdown. No assurance can be given that the UAE Federal Government will not implement regulations or fiscal or monetary policies, including policies, regulations, or new legal interpretations of existing regulations, relating to or affecting taxation, interest rates or exchange controls, or otherwise take actions which could have an adverse effect on the Group's business, results of operations, financial condition and prospects or its ability to perform its obligations under the Transaction Documents to which it is a party or which could adversely affect the market price and liquidity of the Certificates. While the UAE is seen as a relatively stable political environment, certain other jurisdictions in the MENA region are not and there is a risk that regional geopolitical instability could impact the UAE. Instability in the MENA region may result from a number of factors, including government or military regime change, civil unrest or terrorism. In particular, since early 2011 there has been political unrest in a range of countries in the MENA region, including Algeria, Egypt, the Hashemite Kingdom of Jordan, the Kingdom of Bahrain, the Kingdom of Saudi Arabia, Libya, Palestine, the Republic of Iraq (Kurdistan), the Republic of Yemen, the Sultanate of Oman, Syria, Turkey and Tunisia. This unrest has ranged from public demonstrations to, in extreme cases, armed conflict (including the multinational conflict with Islamic State (also known as Daesh, ISIS or ISIL)) and the overthrow of existing leadership and has given rise to increased political uncertainty across the region. Further, the UAE, along with other Arab states, is currently participating in the Saudi Arabian led military intervention in the Republic of Yemen which began in 2015 in response to requests for assistance from the Yemeni government against the Al Houthi militia. The UAE is also a member of another Saudi Arabian led military coalition formed in December 2015 to combat Islamic extremism and, in particular, Islamic State. Additionally, in June 2017 a number of MENA countries including the UAE, the Kingdom of Saudi Arabia, the Kingdom of Bahrain and Egypt severed diplomatic relations with the State of Qatar, citing the State of Qatar's alleged support for terrorism and accusing the State of Qatar of creating instability in the region. The termination of diplomatic relations included the withdrawal of ambassadors and imposing trade and travel bans. There are also ongoing tensions between the United States and Iran, which were heightened in January 2020 following the killing of Iranian General Qasem Soleimani by a United States drone strike and retaliatory attacks by Iran on United States military bases in the Republic of Iraq. These situations have caused significant disruption to the economies of affected countries and may have had a destabilising effect on international oil and gas prices (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – Oil price volatility and future currency de-pegging could adversely impact the Group's net profit margins and financing costs"). In 2020, the macro-economic environment (both globally and within the UAE) has also been materially affected by the COVID-19 outbreak (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – The Group's business, results of operations, financial condition and prospects may be materially adversely affected by changes in the macro-economic environment following the COVID-19 outbreak" and "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – COVID-19 outbreak"). Though the effects of such politico-economic uncertainty have been varied, it is not possible to predict the occurrence of events or circumstances such as war, hostilities or pandemics, or the impact of such occurrences, and no assurance can be given that the UAE would be able to sustain its current economic growth levels if adverse political, economic or related events or circumstances were to occur. Continued instability affecting the countries in the MENA region could adversely impact the UAE, although to-date there has been no significant impact on Dubai or the UAE. Dubai is also dependent on expatriate labour and has made significant efforts in recent years to attract high volumes of foreign businesses and tourists to the Emirate (see further "The United Arab Emirates Banking Sector and Regulations – Characteristics of the Banking System – Expatriate workforce"). These steps make it potentially more vulnerable should regional instability increase. In addition, the continued instability affecting countries in the MENA region could negatively impact the number of foreign businesses seeking to invest in the UAE, whilst also affecting the number of tourists visiting the UAE. - 10 -
23. A general downturn , political instability or volatility in certain sectors of the UAE or the regional economy could have a material adverse effect on the Group's business, results of operations, financial condition and prospects (including any trickle-down effect due to the resultant instability or slowdown resulting in a downturn in the fortunes of any of the Group's depositors and customers). The UAE's high dependence on oil revenues may adversely affect the Group's business Although the UAE has a more diversified economy than most of the other countries in the GCC, the UAE's economy is highly dependent upon its oil and affiliated sectors' revenues (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – Oil price volatility and future currency de-pegging could adversely impact the Group's net profit margins and financing costs"). Any significant and/or prolonged fluctuation in oil prices could therefore have a material adverse economy on the UAE economy and, as a result, may have a material adverse impact on the Group's business (including any trickle-down effect due to the resultant economic slowdown resulting in a downturn in the fortunes of any of the Group's depositors and customers). Oil prices may fluctuate in response to changes in many factors, including: • economic and political developments in oil producing regions, particularly in the Middle East; • global and regional supply and demand dynamics, and expectations regarding future supply and demand, for oil products; • the ability of members of OPEC and other crude oil producing nations to agree upon and maintain specified global production levels and prices; • the impact of international environmental regulations designed to reduce carbon emissions; • other actions taken by major crude oil producing or consuming countries; • prices and availability of alternative fuels; • global economic and political conditions; • prices and availability of new technologies using alternative fuels; and • global weather and environmental conditions. Changes in currency policy and procedure and de-pegging may affect Emirates Islamic's ability to perform its obligations under the Transaction Documents There is a possibility that some countries in the GCC may abandon their respective national currencies in favour of a single GCC currency. If a single GCC currency is adopted, the necessary convergence of laws, policies and procedure will bring significant changes to the economic and political infrastructure in each of the GCC states. As yet there has been no announcement of any monetary union and there are currently no details of new legislation or policies. It is also possible that some countries in the GCC could remove or devalue their currency peg to the U.S. dollar (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – Oil price volatility and future currency de-pegging could adversely impact the Group's net profit margins and financing costs"). Investors should, however, be aware that new legislation and any resulting shift in policy and procedure in the UAE, including currency de-pegging or devaluation, could affect the ability of Emirates Islamic to perform its obligations in respect of the Transaction Documents to which it is a party. Risks related to the structure of a particular issue of Certificates A wide range of Certificates may be issued under the Programme. A number of these Certificates may have features which contain particular risks for potential investors. Set out below is a description of the most common such features: - 11 -
24. The Certificates may be subject to early dissolution by the Trustee If so provided in the applicable Final Terms , a Series may be redeemed early at the option of the Trustee. Any such early redemption feature of any Certificate is likely to limit its market value. During any period when the Trustee may elect to redeem Certificates, the market value of those Certificates generally will not rise substantially above the dissolution amount payable. This also may be true prior to any redemption period. The Trustee may be expected to redeem Certificates when the Trustee's matching deposits rates are lower than the profit rate on the Certificates. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective profit rate as high as the profit rate on the Certificates being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider re-investment risk in light of other investments available at that time. The Certificates may be subject to early redemption for tax reasons If the Trustee becomes obliged to pay any additional amounts in respect of the Certificates as set out in Condition 13 (Taxation) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date on which agreement is reached to issue a Series of Certificates, the Trustee may redeem all but not some only of the outstanding Certificates of such Series in accordance with Condition 12.2 (Early Dissolution for Tax Reasons). Other risks relating to the terms of the Certificates Regulation and reform of "benchmarks" may adversely affect the trading market for, value of and return on Certificates based on such "benchmarks" Interest rates and indices which are deemed to be "benchmarks" (including, without limitation, the London interbank offered rate ("LIBOR") and the euro interbank offered rate ("EURIBOR")) are the subject of ongoing national and international regulatory discussions and proposals for reform. Some of these reforms are already effective whilst others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, to disappear entirely, or have other consequences which cannot be predicted. Regulation (EU) 2016/1011 (the "Benchmarks Regulation") became applicable from 1 January 2018. The Benchmarks Regulation applies, subject to certain transitional provisions, to the provision of benchmarks, the contribution of input data to a benchmark and the use of a benchmark within the EU or the UK. Among other things it requires benchmark administrators to be authorised or registered (by a national regulator, unless an exception applies) (or, if they are not based in the EU or the UK, to be subject to an equivalent regime otherwise recognised or endorsed) and prevents certain uses by EU or UK supervised entities of benchmarks administered by administrators that are not authorised or registered (or, if they are not based in either the EU or the UK, not deemed equivalent or recognised or endorsed). The Benchmarks Regulation could have a material impact on any Certificates linked to a benchmark. In particular, if the methodology or other terms of the benchmark are changed in order to comply with the terms of the Benchmarks Regulation and such changes could, among other things, have the effect of reducing or increasing the rate or level, or affecting the volatility of the published rate or level of the benchmark. More broadly, any of the international or national reforms or other proposals for reform, or the general increased regulatory scrutiny of benchmarks, could increase the costs and risks of administering or otherwise participating in the setting of a benchmark and complying with any such regulations or requirements. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the discontinuance or unavailability of quotes of certain benchmarks. As an example of such benchmark reforms, on 27 July 2017, the UK Financial Conduct Authority (the "FCA"), which regulates LIBOR, announced that it would no longer persuade or compel banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after the end of 2021 and, on 12 July 2018, announced that the LIBOR benchmark may cease to be a regulated benchmark under the Benchmarks - 12 -
25. Regulation . Such announcements indicate that the continuation of LIBOR on the current basis (or at all) cannot and will not be guaranteed after 2021. In addition, on 29 November 2017, the Bank of England and the FCA announced that, from January 2018, its working group on Sterling risk free rates has been mandated with implementing a broad-based transition to the Sterling Overnight Index Average ("SONIA") over the next four years across sterling bond, loan and derivative markets so that SONIA is established as the primary sterling interest rate benchmark by the end of 2021. On 21 September 2017, the European Central Bank announced that it would be part of a new working group tasked with the identification and adoption of a "risk free overnight rate" which can serve as a basis for an alternative to current benchmarks used in a variety of financial instruments and contracts in the euro area. On 13 September 2018, the working group on Euro risk-free rates recommended the new Euro short-term rate ("€STR") as the new risk-free rate for the euro area. €STR was published for the first time on 2 October 2019. Although EURIBOR has been reformed in order to comply with the terms of the Benchmarks Regulation, it remains uncertain as to how long it will continue in its current form, or whether it will be further reformed or replaced with €STR or an alternative benchmark. The elimination of any benchmark, the transition of an existing benchmark to an alternative benchmark or changes in the manner of administration of any benchmark, could require or result in an adjustment to the Period Distribution Amount calculation provisions of the Conditions (as further described in Condition 9.7 (Benchmark Replacement)), or result in adverse consequences to holders of any Certificates linked to such benchmark. Furthermore, even prior to the implementation of any changes, uncertainty as to the nature of alternative reference rates and as to potential changes to such benchmark may adversely affect such benchmark during the term of the relevant Certificates, the return on the relevant Certificates and the trading market for securities (including the Certificates) based on the same benchmark. The Conditions provide for certain fallback arrangements in the event that a published benchmark (including any page on which such benchmark may be published (or any successor service)) becomes unavailable, unlawful or unrepresentative, including the possibility that the Rate could be set by reference to a successor rate or an alternative rate and that such successor rate or alternative reference rate may be adjusted (if required) in accordance with the recommendation of a relevant governmental body or in order to reduce or eliminate, to the extent reasonably practicable in the circumstances, any economic prejudice or benefit (as applicable) to investors arising out of the replacement of the relevant benchmark, although the application of such adjustments to the Certificates may not achieve this objective. Any such changes may result in the Certificates performing differently (which may include payment of a lower Rate) than if the original benchmark continued to apply. In certain circumstances the ultimate fallback of a Rate for a particular Return Accumulation Period may result in the Rate for the last preceding Return Accumulation Period being used. This may result in the effective application of a fixed rate for Certificates in respect of which the Floating Periodic Distribution Provisions are specified in the applicable Final Terms as being applicable based on the Rate which was last observed on the Relevant Screen Page. In addition, due to the uncertainty concerning the availability of successor rates and alternative reference rates and the involvement of an Independent Adviser (as defined in the Conditions), the relevant fallback provisions may not operate as intended at the relevant time. Additionally, in order to facilitate the calculation of a Successor Rate or Alternative Reference Rate, and in each case, the applicable Adjustment Spread, the Conditions provide that the Obligor may vary the Conditions and/or the Agency Agreement without any requirement for the consent or approval of the Certificateholders. Any such consequences could have a material adverse effect on the value of and return on any such Certificates. Investors should consult their own independent advisers and make their own assessment about the potential risks imposed by the Benchmarks Regulation reforms or possible cessation or reform of certain reference rates in making any investment decision with respect to any Certificates linked to or referencing a benchmark and the material adverse effect these may have on the value or liquidity of, and return on, any Certificates which reference any such benchmark. - 13 -
26. The Certificates are subject to modification by a majority of Certificateholders without the consent of all Certificateholders The Conditions contain provisions for calling meetings of Certificateholders to consider matters affecting their interests generally . These provisions permit defined majorities to bind all Certificateholders including Certificateholders who did not attend and vote at the relevant meeting and Certificateholders who voted in a manner contrary to the majority. The Conditions also provide that the Obligor and/or the Independent Advisor may agree, without the consent of Certificateholders, to any modification of any Certificates, in the circumstances specified in Condition 9.7 (Benchmark Replacement). No third-party guarantees Investors should be aware that no guarantee is given in relation to the Certificates by Emirates NBD Bank PJSC, the Government of Dubai (see also "The interests of the Group's controlling shareholder, and its ability to control actions of the Group, may conflict with the commercial interests of the Group, which may also conflict with the interests of the Certificateholders" above) or any other third parties. Investors must make their own determination as to Shari'a compliance The EI Shari'a Committee and the Global Shariah Supervisory Committee of Standard Chartered Bank have each issued a Fatwa confirming that, in its view, the Transaction Documents, the Certificates (and the related structure) are in compliance with Shari'a rules and principles. However, a fatwa is only an expression of the view of the relevant Shari'a committee based on its experience in the subject and is not a binding opinion. There can be no assurance that the Transaction Documents or the issue and trading of the Certificates will be deemed to be Shari'a compliant by any other Shari'a committee or Shari'a scholars and none of the Trustee, the Obligor, the Agents, the Delegate or the Dealers makes any representation as to the same. Investors are reminded that, as with any Shari'a views, differences in opinion are possible. Potential investors should obtain their own independent Shari'a advice as to whether the structure meets their individual standards of compliance and make their own determination as to the future tradability of the Certificates on any secondary market. Questions as to the Shari'a permissibility of the structure or the issue and the trading of the Certificates may limit the liquidity and adversely affect the market value of the Certificates. In addition, prospective investors are reminded that the enforcement of any obligations of any of the parties under certain Transaction Documents would be, if in dispute, the subject of arbitration in London under the Rules. The Obligor has also agreed under certain Transaction Documents to which it is a party to submit to the exclusive jurisdiction of the courts of England or the DIFC courts, at the option of the Trustee or the Delegate. In such circumstances, the arbitrator or judge (as applicable) should apply the governing law of the relevant Transaction Document in determining the obligations of the parties. In the event that proceedings take place in a court in the United Arab Emirates and a judge sitting in such court applies core Shari'a rules and principles in determining the obligations of the parties, potential investors should also note that the pronouncement of the Shari'a advisors would not bind that court, and any court will have the discretion to make its own determination about whether the Transaction Documents and the Certificates comply with Shari'a rules and principles. The Certificates are limited recourse obligations The Certificates to be issued under the Programme are not debt obligations of the Trustee. Instead, the Certificates represent an undivided ownership interest solely in the relevant Trust Assets. Recourse to the Trustee in respect of each Series of Certificates is limited to the Trust Assets of that Series and the proceeds of such Trust Assets are the sole source of payments on the relevant Certificates. Upon the occurrence of a Dissolution Event, or early dissolution pursuant to Conditions 12.2 (Early Dissolution for Tax Reasons), 12.3 (Dissolution at the Option of the Trustee) or, in certain circumstances, 12.4 (Redemption at the Option of the Certificateholders), the sole rights of each of the Trustee and, through the Delegate, the Certificateholders of the relevant Series of Certificates will be against the Obligor to perform its obligations under the Transaction Documents to which it is a party. Certificateholders will otherwise have no recourse to any assets of the Trustee, the Delegate, the Obligor, the relevant Dealer and the Principal Paying Agent or any affiliate of any of the foregoing entities in respect - 14 -
27. of any shortfall in the expected amounts due under the Transaction Documents in respect of the relevant Trust Assets . The Obligor is obliged to make certain payments under the Transaction Documents to which it is a party directly to the Trustee, and the Delegate will have direct recourse against the Obligor to recover such payments due to the Trustee from the Obligor pursuant to the Transaction Documents to which it is a party. There can be no assurance that the net proceeds of the realisation of, or enforcement action with respect to, the Trust Assets will be sufficient to make all payments due in respect of the Certificates of the relevant Series. After enforcing or realising the rights in respect of the Trust Assets of a Series and distributing the net proceeds of such Trust Assets in accordance with Condition 6.2 (Application of Proceeds from the Trust Assets), the obligations of the Trustee in respect of the Certificates of the relevant Series shall be satisfied and neither the Delegate nor any Certificateholder may take any further steps against the Trustee to recover any further sums in respect of such Certificates and the right to receive any such sums unpaid shall be extinguished. Furthermore, under no circumstances shall the Trustee, the Delegate or any Certificateholder have any right to cause the sale or other disposition of any of the Trust Assets except pursuant to the Purchase Undertaking and the sole right of the Trustee, the Delegate and the Certificateholders against the Obligor shall be to enforce the obligation of the Obligor to pay the relevant Exercise Price under the Purchase Undertaking and otherwise perform its obligations under the Transaction Documents to which it is a party. Trading in the clearing systems In relation to any issue of Certificates which have denominations consisting of a minimum Specified Denomination plus one or more higher integral multiples of another smaller amount, it is possible that such Certificates may be traded in amounts that are not integral multiples of such minimum Specified Denomination. In such a case a holder who, as a result of trading such amounts, holds an amount which is less than the minimum Specified Denomination in his account with the relevant clearing system at the relevant time may not receive a definitive Certificate in respect of such holding (should definitive Certificates be printed) and would need to purchase a principal amount of Certificates such that its holding amounts to a Specified Denomination. If definitive Certificates are issued, holders should be aware that definitive Certificates which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade. If a Certificateholder holds an amount which is less than the minimum Specified Denomination in his account with the relevant clearing system at the relevant time, such Certificateholder may not receive a definitive Certificate in respect of such holding (should definitive Certificates be printed) and would need to purchase a principal amount of Certificates such that its holding amounts to at least a Specified Denomination in order to be eligible to receive a definitive Certificate. Reliance on Euroclear and Clearstream, Luxembourg procedures Each Series of Certificates will be represented on issue by one or more Global Certificates that will be deposited with a Common Depositary for Euroclear and Clearstream, Luxembourg (each as defined in "Form of the Certificates" below). Except in the circumstances described in the relevant Global Certificate, investors will not be entitled to receive Certificates in definitive form. Euroclear and Clearstream, Luxembourg and their respective direct and indirect participants will maintain records of the beneficial interests in the Global Certificates. While the Certificates are represented by a Global Certificate, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg and their respective participants. While Certificates are represented by a Global Certificates, the Trustee will discharge its payment obligation under such Certificate by making payments through the relevant clearing systems. A holder of a beneficial interest in a Global Certificate must rely on the procedures of the relevant clearing system and its participants to receive payments under the Certificates. The Trustee has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in any Global Certificate. Holders of beneficial interests in a Global Certificate will not have a direct right to vote in respect of the Certificates. Instead, such holders will be permitted to act only to the extent that they are enabled by the relevant clearing system and its participants to appoint appropriate proxies. - 15 -
28. Risks relating to Certificates denominated in Renminbi Certificates denominated in Renminbi ("RMB Certificates") may be issued under the Programme. RMB Certificates contain particular risks for potential investors, including: Renminbi is not freely convertible and there are significant restrictions on the remittance of Renminbi into and out of the PRC which may adversely affect the liquidity of RMB Certificates Renminbi is not freely convertible at present. The government of the PRC (the "PRC Government") continues to regulate conversion between Renminbi and foreign currencies, including the Hong Kong dollar. However, there has been significant reduction in control by the PRC Government in recent years, particularly over trade transactions involving import and export of goods and services as well as other frequent routine foreign exchange transactions. These transactions are known as current account items. On the other hand, remittance of Renminbi into and out of the PRC for the settlement of capital account items, such as capital contributions, debt financing and securities investment is generally only permitted upon obtaining specific approvals from, or completing specific registrations or filings with, the relevant authorities on a case-by-case basis and is subject to a strict monitoring system. Regulations in the PRC on the remittance of Renminbi into and out of the PRC for settlement of capital account items are being developed. Although Renminbi was added to the Special Drawing Rights basket created by the IMF in 2016 and policies further improving accessibility to Renminbi to settle cross-border transactions in foreign currencies were implemented by the People's Bank of China ("PBoC") in 2018, there is no assurance that the PRC Government will continue to gradually liberalise control over cross-border remittance of Renminbi in the future, that the schemes for Renminbi cross-border utilisation will not be discontinued or that new regulations in the PRC will not be promulgated in the future which have the effect of restricting or eliminating the remittance of Renminbi into or out of the PRC. Despite the Renminbi internationalisation pilot programme and efforts in recent years to internationalise the currency, there can be no assurance that the PRC Government will not impose interim or long-term restrictions on the cross-border remittance of Renminbi. In the event that funds cannot be repatriated out of the PRC in Renminbi, this may affect the overall availability of Renminbi outside the PRC and the ability of the Trustee to source Renminbi to finance its obligations under Certificates denominated in Renminbi. There is only limited availability of Renminbi outside the PRC, which may affect the liquidity of the RMB Certificates and the Trustee's ability to source Renminbi outside the PRC to service RMB Certificates As a result of the restrictions by the PRC Government on cross-border Renminbi fund flows, the availability of Renminbi outside the PRC is limited. While the PBoC has entered into agreements (the "Settlement Arrangements") on the clearing of Renminbi business with financial institutions (the "Renminbi Clearing Banks") in a number of financial centres and cities, including but not limited to Hong Kong; has established the Cross-Border Inter-Bank Payments System (CIPS) to facilitate cross-border Renminbi settlement, and is further in the process of establishing Renminbi clearing and settlement mechanisms in several other jurisdictions, the current size of Renminbi denominated financial assets outside the PRC is limited. There are restrictions imposed by PBoC on Renminbi business-participating banks in respect of crossborder Renminbi settlement, such as those relating to direct transactions with PRC enterprises. Furthermore, Renminbi business participating banks do not have direct Renminbi liquidity support from PBoC, although PBoC has gradually allowed participating banks to access the PRC's onshore inter-bank market for the purchase and sale of Renminbi. The Renminbi Clearing Banks only have limited access to onshore liquidity support from PBoC for the purpose of squaring open positions of participating banks for limited types of transactions and are not obliged to square for participating banks any open positions resulting from other foreign exchange transactions or conversion services. In cases where the participating banks cannot source sufficient Renminbi through the above channels, they will need to source Renminbi from outside the PRC to square such open positions. Although it is expected that the offshore Renminbi market will continue to grow in depth and size, its growth is subject to many constraints as a result of PRC laws and regulations on foreign exchange. There - 16 -
29. is no assurance that new PRC regulations will not be promulgated or the Settlement Arrangements will not be terminated or amended in the future which will have the effect of restricting availability of Renminbi outside the PRC . The limited availability of Renminbi outside the PRC may affect the liquidity of the RMB Certificates. To the extent the Trustee is required to source Renminbi in the offshore market to service its RMB Certificates, there is no assurance that the Trustee will be able to source such Renminbi on satisfactory terms, if at all. Investment in RMB Certificates is subject to exchange rate risks The value of Renminbi against other foreign currencies fluctuates from time to time and is affected by changes in the PRC and international political and economic conditions as well as many other factors. Recently, the PBoC implemented changes to the way it calculates the Renminbi's daily mid-point against the U.S. dollar to take into account market-maker quotes before announcing such daily mid-point. This change, and others that may be implemented, may increase the volatility in the value of the Renminbi against foreign currencies. All payments of interest and principal will be made in Renminbi with respect to the RMB Certificates unless otherwise specified. As a result, the value of these Renminbi payments may vary with the changes in the prevailing exchange rates in the marketplace. If the value of Renminbi depreciates against another foreign currency, the value of the investment made by a holder of the RMB Certificates in that foreign currency will decline. Gains on the transfer of the RMB Certificates may become subject to income taxes under PRC tax laws Under the PRC Enterprise Income Tax Law, the PRC Individual Income Tax Law and the relevant implementing rules, as amended from time to time, any gain realised on the transfer of RMB Certificates by non-PRC resident enterprise or individual holders may be subject to PRC enterprise income tax ("EIT") or PRC individual income tax ("IIT") if such gain is regarded as income derived from sources within the PRC. The PRC Enterprise Income Tax Law levies EIT at the rate of 20 per cent. of the PRC-sourced gains derived by such non-PRC resident enterprise from the transfer of RMB Certificates but its implementation rules have reduced the EIT rate to 10 per cent. The PRC Individual Income Tax Law levies IIT at a rate of 20 per cent. of the PRC-sourced gains derived by such non-PRC resident or individual holder from the transfer of RMB Certificates. However, uncertainty remains as to whether the gain realised from the transfer of RMB Certificates by nonPRC resident enterprise or individual holders would be treated as income derived from sources within the PRC and thus become subject to EIT or IIT. This will depend on how the PRC tax authorities interpret, apply or enforce the PRC Enterprise Income Tax Law, the PRC Individual Income Tax Law and the relevant implementing rules. According to the arrangement between the PRC and Hong Kong, for avoidance of double taxation, holders who are residents of Hong Kong, including enterprise holders and individual holders, will not be subject to EIT or IIT on capital gains derived from a sale or exchange of the Certificates. Therefore, if enterprise or individual resident holders which are non-PRC residents are required to pay PRC income tax on gains derived from the transfer of RMB Certificates, unless there is an applicable tax treaty between PRC and the jurisdiction in which such non-PRC enterprise or individual holders of RMB Certificates reside that reduces or exempts the relevant EIT or IIT, the value of their investment in RMB Certificates may be materially and adversely affected. Payments in respect of RMB Certificates will only be made to investors in the manner designated in the RMB Certificates All payments to investors in respect of the RMB Certificates will be made solely: (i) for so long as the RMB Certificates are represented by global certificates held with the common depositary for Clearstream Banking S.A. ("Clearstream, Luxembourg") and Euroclear Bank SA/NV ("Euroclear") or any alternative clearing system, by transfer to a Renminbi bank account maintained in Hong Kong; (ii) for so long as the RMB Certificates are represented by global certificates lodged with a sub-custodian for or registered with the CMU, by transfer to a Renminbi bank account maintained in Hong Kong in accordance with prevailing CMU rules and procedures; or (iii) for so long as the RMB Certificates are in definitive form, by transfer to a Renminbi bank account maintained in Hong Kong in accordance with prevailing rules and regulations. The Trustee cannot be required to make payment by any other means (including in any other currency or by transfer to a bank account in the PRC). - 17 -
30. An investment in RMB Certificates is subject to interest rate risks The PRC Government has gradually liberalised its regulation of interest rates in recent years . Further liberalisation may increase interest rate volatility. In addition, the interest rate for Renminbi in markets outside the PRC may significantly deviate from the interest rate from Renminbi in the PRC as a result of foreign exchange controls imposed by PRC law and regulations and prevailing market conditions. As RMB Certificates may carry a fixed interest rate, the trading price of the RMB Certificates will consequently vary with the fluctuations in Renminbi interest rates. If holders of the RMB Certificates propose to sell their RMB Certificates before their maturity, they may receive an offer lower than the amount they have invested. Other risks related to the market price and marketability of the Certificates A secondary market may not develop for any Certificates There is no assurance that a market for the Certificates will develop or, if it does develop, that it will continue for the life of such Certificates. Accordingly, a Certificateholder may not be able to find a buyer to buy its Certificates readily or at prices that will enable the Certificateholder to realise a desired yield. The market value of the Certificates may fluctuate and a lack of liquidity, in particular, can have a severe adverse effect on the market value of the Certificates. Accordingly, the purchase of the Certificates is suitable only for investors who can bear the risks associated with a lack of liquidity in the Certificates and the financial and other risks associated with an investment in the Certificates. Certificates may be subject to exchange rate risks and exchange controls The Trustee will pay Periodic Distribution Amounts and Dissolution Amounts on the Certificates in the Specified Currency. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to the Specified Currency would decrease: (a) the Investor's Currency-equivalent yield on the Certificates; (b) the Investor's Currency-equivalent value of the Dissolution Amounts payable on the Certificates; and (c) the Investor's Currency-equivalent market value of the Certificates. Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal. Credit ratings may not reflect all risks One or more independent credit rating agencies may assign credit ratings to the Obligor or the Certificates. The ratings may not reflect the potential impact of all risks related to the transaction structure, the market, the additional factors discussed above, or any other factors that may affect the value of the Certificates. A credit rating is not a recommendation to buy, sell or hold securities and may be revised, suspended or withdrawn by the rating agency at any time. In general, European regulated investors are restricted under the CRA Regulation from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU or in the UK and registered under the CRA Regulation (and such registration has not been withdrawn or suspended), subject to transitional provisions that apply in certain circumstances. Such general restriction will also apply in the case of credit ratings issued by non-EU or non-UK credit rating agencies, unless the relevant credit ratings are endorsed by an EU or UK registered credit rating agency or the relevant non-EU and non-UK rating agency is certified in accordance with the CRA Regulation (and such endorsement action or certification, as the case may be, has not been withdrawn or suspended, subject to transitional provisions that apply in certain circumstances). The list of registered and certified rating agencies published by ESMA on its website in accordance with the CRA Regulation is not conclusive evidence of the status of the relevant rating agency being included in such list as there may be delays between certain supervisory measures being taken against a relevant rating agency and publication of an updated ESMA list. Certain - 18 -
31. information with respect to the credit rating agencies and ratings will be disclosed in the relevant Final Terms . If the status of the rating agency rating the Certificates changes, European and UK regulated investors may no longer be able to use the rating for regulatory purposes and the Certificates may have a different regulatory treatment. This may result in European and UK regulated investors selling the Certificates which may impact the value of the Certificates and any secondary market. Risk factors relating to the Wakala Assets Ownership of the Wakala Assets In order to comply with the requirements of Shari'a, an ownership interest in the Wakala Assets comprised within the relevant Wakala Portfolio will pass to the Trustee under the Master Purchase Agreement, as supplemented by the relevant Supplemental Purchase Agreement. The Trustee will, under English law pursuant to the relevant Trust Deed, declare a trust in respect of its interests in the Wakala Assets and the other Trust Assets in favour of the Certificateholders of the relevant Series. Accordingly, Certificateholders will, through the ownership interest of the Trustee, have an undivided ownership interest in the relevant Wakala Assets unless the transfer of the interest in such Wakala Assets is prohibited by, or ineffective under, any applicable law (see "Transfer of the Trust Assets" below). The Wakala Assets will be selected by the Obligor, and none of the Certificateholders, the Trustee or the Delegate will have any ability to influence such selection. Only limited representations will be obtained from the Obligor in respect of the Wakala Assets of any Series, and no representation shall be given by the Obligor in respect of expected profit generation under the Wakala Assets. No investigation or enquiry will be made and no due diligence will be conducted by any of the Trustee, the Delegate, any Agent or any Dealer in respect of any Wakala Assets. No steps will be taken to perfect the legal transfer of the ownership interest (including registration, if necessary) in the Wakala Assets with any relevant regulatory authority in the UAE or otherwise give notice to any lessee or obligor in respect thereof. For the avoidance of doubt, this will not prejudice any transfer of Wakala Assets in accordance with the rules and principles of Shari'a. In order to comply with the requirements of the EI Shari'a Committee, the Obligor shall maintain details of the Wakala Assets in the relevant Wakala Portfolio in respect of each Series and shall, on each relevant Periodic Distribution Date, submit a report in respect of such Sukuk Portfolio to the EI Shari'a Committee. Transfer of the Wakala Assets No investigation has been or will be made as to whether any Wakala Assets may be transferred as a matter of the law governing the contracts (if any) underlying such Wakala Assets, the law of the jurisdiction where such assets are located or any other relevant law. No investigation will be made to determine if any Purchase Agreement will have the effect of transferring an interest in the relevant Wakala Assets. Nevertheless, as indicated earlier, although, in order to comply with the requirements of Shari'a, an ownership interest in the Wakala Assets will pass to the Trustee under the Master Purchase Agreement, together with the relevant Supplemental Purchase Agreement, the Certificateholders will not have any rights of enforcement as against the Wakala Assets and their rights are limited to enforcement against the Obligor of its obligation to purchase the Wakala Assets pursuant to the terms of the Purchase Undertaking. Accordingly, any such restriction on the ability of the Obligor to perfect the sale of the Wakala Assets to the Trustee is likely to be of limited consequence to the rights of the Certificateholders. By way of further assurance, the Obligor has covenanted in the Purchase Undertaking that to the extent that any sale and purchase or transfer and assignment of any of the Wakala Assets is not valid or effective in any jurisdiction for any reason, it will make restitution in respect of those Trust Assets, will fully accept all or any ownership interest the Trustee may have in the relevant Wakala Assets and, if that ownership interest is disputed or challenged, will fully indemnify the Trustee for the purpose of redemption in full or in part, as the case may be, of the relevant Series of Certificates and, accordingly, the amount payable under such indemnity will equal the relevant Exercise Price (see "Description of the Principal Transaction Documents – Purchase Undertaking"). Credit risk The Trustee will fund the redemption amount payable by it in respect of each Series of Certificates with the Exercise Price paid to it by the Obligor under the Purchase Undertaking, see "Summary of the Principal - 19 -
32. Transaction Documents - Purchase Undertaking ". Risk factors relating to taxation Taxation risks on payments Payments made by the Obligor to the Trustee under the Transaction Documents or by the Trustee in respect of the Certificates could become subject to taxation. The Service Agency Agreement and the Purchase Undertaking each require the Obligor to pay additional amounts in the event that any withholding or deduction is required by UAE law to be made in respect of payments made by it to the Trustee under those documents. Condition 13 (Taxation) provides that the Trustee is required to pay additional amounts in respect of any such withholdings or deductions imposed by the Cayman Islands and/or the UAE (see Condition 13 (Taxation) and the definitions of "Taxes" and "Relevant Jurisdiction") in certain circumstances. In the event that the Trustee fails to gross-up for any such withholding or deduction on payments due in respect of the Certificates to Certificateholders, the Obligor has, pursuant to the Master Trust Deed, unconditionally and irrevocably undertaken (irrespective of the payment of any fee), as a continuing obligation, to pay to the Trustee (for the benefit of the Certificateholders) an amount equal to the liabilities of the Trustee in respect of any and all additional amounts required to be paid in respect of the Certificates pursuant to Condition 13 (Taxation) in respect of any withholding or deduction in respect of any tax as set out in that Condition. Risk factors relating to enforcement UAE bankruptcy law In the event of the insolvency of the Obligor, UAE bankruptcy law may adversely affect the ability of the Obligor to perform its obligations under the Transaction Documents. There is little precedent to predict how a claim on behalf of Certificateholders against the Obligor would be resolved in the case of the insolvency of the Obligor (including the approach that would be adopted by a liquidator or analogous insolvency official in respect of any subordination agreed as a matter of contract between the Obligor and any of its creditors). Enforcing foreign arbitration awards, foreign judgments in Dubai The payments under the Certificates are dependent upon the Obligor making payments to investors in the manner contemplated under the Transaction Documents. If the Obligor fails to do so, it may be necessary to bring an action against the Obligor to enforce its obligations and/or to claim damages which could be both time consuming and costly. Furthermore, to the extent that the enforcement of remedies must be pursued in the UAE, it should be borne in mind that there is limited scope for self-help remedies under UAE law and that generally enforcement of remedies in the UAE must be pursued through the courts. The Obligor has irrevocably agreed to the Certificates and certain Transaction Documents being governed by English law. Unresolved disputes in relation to the Certificates and such Transaction Documents governed by English law will, unless the option to litigate set out therein is exercised, be referred to arbitration under the LCIA Arbitration Rules with the seat of arbitration in London. In the event that such option to litigate set out therein is exercised, any dispute may also be referred to the courts of England or the courts of Dubai International Financial Centre (the "DIFC Courts") (or another court of competent jurisdiction as the relevant party may elect). Notwithstanding that an arbitral award may be obtained from an arbitral tribunal in London or that a judgment may be obtained in an English court there is no assurance that the Obligor has or would at the relevant time have assets in the UK against which such a judgment could be enforced. The Obligor is a UAE company and is incorporated in and has its operations and the majority of its assets located in the UAE. To the extent that the enforcement of remedies must be pursued in the UAE, it should be borne in mind that there is limited scope for self-help remedies under UAE law and that generally enforcement of remedies in the UAE must be pursued through the courts. Under current Dubai law, the Dubai courts are unlikely to enforce an English court judgment without reexamining the merits of the claim and may not observe the choice by the parties of English law as the governing law of the transaction. In the UAE, foreign law is required to be established as a question of fact, and the interpretation of English law, by a court in the UAE, may not accord with the perception of an English court. In principle, courts in the UAE recognise the choice of foreign law if they are satisfied that - 20 -
33. an appropriate connection exists between the relevant transaction agreement and the foreign law which has been chosen . They will not, however, honour any provision of foreign law which is contrary to public policy, order or morals in the UAE, or to any mandatory law of, or applicable in, the UAE. The UAE is a civil law jurisdiction and judicial precedents in Dubai have no binding effect on subsequent decisions. In addition, court decisions in Dubai are generally not recorded. These factors create greater judicial uncertainty. As described above, the Obligor has agreed under the terms of certain of the Transaction Documents (including the Purchase Undertaking and the Master Trust Deed) to submit to the non-exclusive jurisdiction of the DIFC Courts in respect of any dispute, claim, difference or controversy arising out of or in connection with such Transaction Documents, subject to the right of the Trustee, the Obligor (in respect of the Sale Undertaking only), the Delegate, or the Agents, as the case may be, to elect to bring proceedings in any other court or courts of competent jurisdiction. Dubai Law No. 16 of 2011 on Amending Some Provisions of Law No. 12 of 2004 Concerning the Dubai International Financial Centre Courts ("Law No. 16 of 2011") was issued, and came into force in Dubai, on 31 October 2011 and extends the jurisdiction of the DIFC Courts to include all civil and commercial disputes where the parties to the relevant dispute have expressly agreed to submit to the jurisdiction of the DIFC Courts, even where those parties (such as the Obligor) are unconnected to the Dubai International Financial Centre (the "DIFC"). If, in respect of any Series, the Obligor fails to pay (in whole or in part) the relevant Exercise Price in connection with its purchase of an interest in the relevant Wakala Portfolio under the Purchase Undertaking, the Delegate (on behalf of the relevant Certificateholders) may, subject to the matters set out in Condition 16 (Enforcement and Exercise of Rights) and the terms of the Master Trust Deed relating to the enforcement of rights, seek to enforce, inter alia, the provisions of the Purchase Undertaking and the indemnity provisions set out in the Master Trust Deed against the Obligor by commencing proceedings in the DIFC Courts, which should accept the choice of English law as the governing law of the Purchase Undertaking and the Master Trust Deed. Under Article 7 of Law No. 12 of 2004 as amended by Law No. 16 of 2011, any final and unappealable judgment, order or award issued by the DIFC Courts that is appropriate for enforcement in favour of the Delegate (on behalf of the relevant Certificateholders) shall, upon application by the Delegate to the Dubai courts, be enforced by the Dubai courts against the Obligor without such courts re-examining the merits of the judgment, order or award. Investors should note, however, that as at the date of this Base Prospectus, there has been very limited case law relating to Law No. 16 2011 and therefore it is not certain as to how the DIFC Courts intend to exercise their jurisdiction under the new law should any party dispute the right of the DIFC Courts to hear a particular dispute where such parties are unconnected to the DIFC. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the "New York Convention") entered into force in the UAE on 19 November 2006. In the absence of any other multilateral or bilateral enforcement convention, an arbitration award rendered in London should be enforceable in Dubai in accordance with the terms of the New York Convention. Under the New York Convention, the UAE has an obligation to recognise and enforce foreign arbitration awards, unless the party opposing enforcement can prove one of the grounds under Article V of the New York Convention to refuse enforcement, or the Dubai courts find that the subject matter of the dispute is not capable of settlement by arbitration, or enforcement would be contrary to the public policy of the UAE. How the New York Convention provisions would be interpreted and applied by the Dubai courts in practice and whether the Dubai courts will enforce a foreign arbitration award in accordance with the New York Convention (or any other multilateral or bilateral enforcement convention) remains largely untested. This is reinforced by the lack of a system of binding judicial precedent in the UAE and the independent existence of different Emirates within the UAE, some with their own court systems, whose rulings may have no more than persuasive force cross-border. Although there are examples of foreign arbitral awards being enforced in the UAE under the New York Convention, there are other cases where the enforcement of foreign arbitral awards has been refused, with, for example, the relevant judge confusing the requirements for the enforcement of domestic awards with the requirements for the enforcement of foreign awards. Article 86 of Cabinet Resolution No. (57) of 2018 Concerning the Executive Regulations of the Civil Procedure Law ("Cabinet Resolution 57 of 2018") states that Article 85 applies to foreign arbitration awards, although Article 88 states that Articles 85 to 87 do not prejudice the provision of treaties and agreements entered into by the UAE with other States (which includes the New York Convention). Under Article 85 of Cabinet Resolution 57 of 2018, a judgment or order of a non-UAE court may be enforced by the Dubai courts without further consideration of the merits of the case if, amongst other considerations, there is reciprocity - 21 -
34. of enforcement between the UAE and the country in which the non-UAE judgment or order has been granted . If the UAE courts decide to apply Article 86 of Cabinet Resolution 57 of 2018 in any action to enforce a foreign arbitration award in the UAE, it is likely that a foreign arbitration award would be refused enforcement. Claims for specific enforcement In the event that the Obligor fails to perform its obligations under any Transaction Document to which it is a party, the potential remedies available to the Trustee and the Delegate include obtaining an order for specific enforcement of the relevant obligations or a claim for damages. An order for specific enforcement is at the discretion of the court and there is no assurance that a court will provide such an order. The amount of damages which a court may award in respect of a breach will depend upon a number of possible factors including an obligation on the Trustee and the Delegate to mitigate any loss arising as a result of the breach. No assurance is provided on the level of damages which a court may award in the event of a failure by the Obligor to perform its obligations as set out in the Transaction Documents to which it is a party. Sovereign immunity Under the Transaction Documents to which it is a party, the Obligor has waived its rights in relation to sovereign immunity in respect of such documents. However, there can be no assurance as to whether such waivers of immunity from suit, execution or attachment or other legal process by the Obligor under such Transaction Documents are legal, valid, binding and enforceable under the laws of the UAE and applicable in Dubai. - 22 -
35. DOCUMENTS INCORPORATED BY REFERENCE The following documents which have previously been published and have been filed with the CBI , Euronext Dublin, the DFSA and Nasdaq Dubai shall be incorporated in, and form part of, this Base Prospectus: 1. the unaudited condensed consolidated interim financial statements of the Group as of and for the six months ended 30 June 2020, including comparative financial information for the six months ended 30 June 2019, including: (i) Group condensed consolidated interim statement of financial position (page 2); (ii) Group condensed consolidated interim income statement (page 3); (iii) Group condensed consolidated interim statement of comprehensive income (page 4); (iv) Group condensed consolidated interim statement of cash flows (page 5); (v) Group condensed consolidated interim statement of changes in equity (page 6); (vi) notes to the Group condensed consolidated interim financial statements (pages 7-32); and (vii) independent auditors' review report (page 1), (https://www.emiratesislamic.ae/eng/assets/files/finance/EI_Financial_Report_Q2_2020_En.pdf) 2. the audited consolidated annual financial statements of the Group as of and for the year ended 31 December 2019, including: (i) Group consolidated statement of financial position (page 13); (ii) Group consolidated income statement (page 14); (iii) Group consolidated statement of comprehensive income (page 15); (iv) Group consolidated statement of cash flows (page 16); (v) Group consolidated statement of changes in equity (page 17); (vi) notes to the Group consolidated financial statements (pages 18-96); and (vii) independent auditors' report (pages 7-12), (https://www.emiratesislamic.ae/eng/assets/files/finance/EI_Financial_Statements_2019_ENG.p df); 3. the audited consolidated annual financial statements of the Group as of and for the year ended 31 December 2018, including: (i) Group consolidated statement of financial position (page 12); (ii) Group consolidated income statement (pages 13); (iii) Group consolidated statement of comprehensive income (page 14); (iv) Group consolidated statement of cash flows (page 15); (v) Group consolidated statement of changes in equity (page 16); (vi) notes to the Group consolidated financial statements (pages 17-100); and (vii) independent auditors' report (pages 7-11), (https://www.emiratesislamic.ae/eng/assets/files/finance/EI_Financial_Statements_2018_ENG.p - 23 -
36. df ); and 4. the Terms and Conditions of the Certificates contained in the Base Prospectus dated 16 May 2016, pages 34 to 65 inclusive (https://www.ise.ie/Market-Data-Announcements/Debt/Individual-DebtInstrument-Data/Dept-Security-Documents/?progID=907&FIELDSORT=docId). Following the publication of this Base Prospectus, a supplement may be prepared by the Trustee and approved by the CBI in accordance with Article 23 of the Prospectus Regulation. The Obligor will, in the event of any significant new factor, material mistake or material inaccuracy relating to information included in this Base Prospectus which is capable of affecting the assessment of any Certificates, prepare a supplement to this Base Prospectus or publish a new Base Prospectus for use in connection with any subsequent issue of Certificates. Statements contained in any such supplement (or contained in any document incorporated by reference therein) shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to modify or supersede statements contained in this Base Prospectus or in a document which is incorporated by reference in this Base Prospectus. Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Base Prospectus. Copies of documents incorporated by reference in this Base Prospectus can be obtained, upon request, free of charge, from the registered office of the Obligor and from the specified offices of the Principal Paying Agent and Paying Agents for the time being in London. Any documents incorporated by reference into the documents listed in (1) to (4) above, shall not form part of this Base Prospectus and are deemed to either be not relevant for an investor or otherwise covered elsewhere in this Base Prospectus. - 24 -
37. STRUCTURE DIAGRAM AND CASHFLOWS Set out below is a simplified structure diagram and description of the principal cash flows underlying each Series of Certificates issued . Potential investors are referred to the terms and conditions of the Certificates and the summary of the relevant Transaction Documents set out elsewhere in this document for a fuller description of certain cash flows and for an explanation of the meaning of certain capitalised terms used below. Structure Diagram Principal Cash Flows On the Issue Date of each Tranche of Certificates, the Certificateholders will pay the issue price in respect of the Certificates to the Trustee, and the Trustee will apply this as follows: (a) an amount as specified in the applicable Final Terms which, when aggregated with the murabaha profit component, will not be more than 49 per cent. of the aggregate issue proceeds of the relevant Certificates (the "Murabaha Investment Amount"), to purchase certain Shari'a compliant commodities (the "Commodities") through the Commodity Agent. The Trustee will sell such Commodities to the Obligor (in its capacity as buyer, the "Buyer") on a deferred payment basis for a sale price specified in an offer notice (the "Deferred Sale Price") pursuant to a murabaha contract (the "Murabaha Contract") (such sale of Shari'a compliant commodities by the Trustee to the Obligor being the "Commodity Murabaha Investment"); and (b) the remaining portion of the issue proceeds of the relevant Certificates, which will not be less than 51 per cent. of aggregate issue proceeds of the relevant Certificates (the "Purchase Price"), to the Obligor (in its capacity as seller, the "Seller") as the purchase price payable for the purchase from the Obligor of all its interests, rights, title, benefits and entitlements, present and future, in, to and under the following assets (in the case of the first Tranche of the relevant Series of Certificates, the "Initial Wakala Assets" or, in the case of each subsequent Tranche of the relevant Series of Certificates, the "Additional Assets") of one or more of the following: (i) real estate or non-real estate ijara assets which are currently leased or currently intended to be leased (other than on the basis of a finance lease) by the Obligor to third parties and in respect of which payments are due from the lessee to the Obligor (the "Ijara Assets"); and (ii) any asset, other than an Ijara Asset, which is an income generating asset (including, without limitation, any units in any asset-based funds (other than equity funds), assetbased sukuk or certificates) that is a tangible asset for Shari'a purposes as determined by the EI Internal Shari'a Supervision Committee (the "Other Tangible Assets"), - 25 -
38. (each a "Wakala Asset" and together, the "Wakala Assets"). The Wakala Assets held at the relevant time by the Trustee in relation to each Series comprise the "Wakala Portfolio" which, together with any Commodity Murabaha Investments, comprise the "Sukuk Portfolio". Periodic Distribution Payments In relation to a Series, all revenues from the Sukuk Portfolio (other than any amounts in the nature of sale, capital or principal payments which, together with the commodity purchase price portion of the Deferred Sale Price, comprise the "Principal Revenues") payable in respect of the Wakala Assets and all murabaha profit amounts payable in respect of the Commodity Murabaha Investment (the "Income Revenues" and, together with the Principal Revenues, the "Revenues") will be recorded by the Service Agent in a book-entry ledger account (the "Income Collection Account") while the Principal Revenues will be recorded in a second book-entry ledger account (the "Principal Collection Account"). On each Distribution Determination Date, amounts standing to the credit of the relevant Income Collection Account shall be applied by the Service Agent for payment into the relevant Transaction Account of an amount equal to the aggregate of the Periodic Distribution Amounts payable by the Trustee under the Certificates of the relevant Series on the immediately following Periodic Distribution Date (the "Required Amount") and such Required Amount will be applied by the Trustee for that purpose. In the event that the Income Revenues are greater than the Required Amount, the amount of any excess shall be credited by the Service Agent to a separate book-entry ledger account (the "Reserve Account"). If the amount standing to the credit of the Transaction Account on a Distribution Determination Date is insufficient to fund the Required Amount, the Service Agent shall apply amounts standing to the credit of the Reserve Account towards such shortfall, by paying an amount equal to the same into the Transaction Account. If having applied such amounts from the Reserve Account, there remains a shortfall, the Service Agent may, in its sole discretion, provide either: (a) Shari'a compliant funding to the Trustee itself; or (b) procure Shari'a compliant funding from a third party to be paid to the Trustee, in each case, in an amount equal to the shortfall remaining (if any) and on terms that such funding is repayable from Revenues received in respect of a subsequent period or on the relevant Dissolution Date on which the Certificates of the relevant Series are redeemed in full (such funding being a "Liquidity Facility"). Dissolution Payments On the business day prior to the relevant Maturity Date in relation to each Series: (a) the aggregate amounts of Deferred Sale Price then outstanding, if any, shall become immediately due and payable; (b) the Trustee will have the right under the Purchase Undertaking to require the Obligor to purchase all of its interests, rights, title, benefits and entitlements, present and future, in, to and under the Wakala Portfolio at the relevant Exercise Price; and (c) without double counting, the amounts (if any) standing to the credit of the Principal Collection Account will be paid into the Transaction Account in accordance with the Service Agency Agreement, and such amounts are intended to fund the relevant Final Dissolution Amount payable by the Trustee under the Certificates of the relevant Series on the Maturity Date. The Certificates in relation to any Series may be redeemed in whole or in part, as the case may be, prior to the relevant Maturity Date for the following reasons, in the case of each of (ii) and (iii), if so specified in the applicable Final Terms: (i) for taxation reasons; (ii) at the option of the Obligor; (iii) at the option of the Certificateholders; and (iv) following a Dissolution Event. - 26 -
39. In the case of each of (i) and (ii) above, on the business day prior to the relevant Dissolution Date: (a) the aggregate amounts (or the applicable portion thereof) of Deferred Sale Price then outstanding, if any, shall become immediately due and payable; (b) the Obligor will have the right under the Sale Undertaking to require the Trustee to sell all (or the applicable portion thereof, as the case may be) of its interests, rights, title, benefits and entitlements, present and future, in, to and under the Wakala Portfolio at the relevant Exercise Price or Optional Call Exercise Price, as the case may be; and (c) without double counting, the amounts (if any) standing to the credit of the Principal Collection Account will be paid into the Transaction Account in accordance with the Service Agency Agreement, and such amounts are intended to fund the relevant Dissolution Amount payable by the Trustee under the Certificates of the relevant Series on the Early Tax Dissolution Date or the Optional Dissolution Date, as the case may be. In the case of each of (iii) and (iv) above, such redemption of the Certificates shall be funded in a similar manner as for the payment of the relevant Final Dissolution Amount on the Maturity Date save for, on (or, in the case of (iii) above, the business day prior to) the relevant Dissolution Date: (a) the aggregate amounts (or the applicable portion thereof) of Deferred Sale Price then outstanding, if any, shall become immediately due and payable; (b) the Trustee will have the right under the Purchase Undertaking to require the Obligor to purchase all (or the applicable portion thereof, as the case may be) of its interests, rights, title, benefits and entitlements, present and future, in, to and under the Wakala Portfolio at the relevant Optional Put Exercise Price or Exercise Price, as the case may be; and (c) without double counting, the amounts (if any) standing to the credit of the Principal Collection Account will be paid into the Transaction Account in accordance with the Service Agency Agreement, and such amounts are intended to fund the relevant Dissolution Amount payable by the Trustee under the Certificates of the relevant Series on the Option Redemption Date or the Dissolution Event Redemption Date, as the case may be. For Shari'a reasons, the Optional Dissolution (Call) Option and the Optional Redemption (Investor Put) Option cannot both be specified as applicable in the applicable Final Terms in respect of any single Series. Any amounts standing to the credit of the Reserve Account on the Dissolution Date may be retained by the Service Agent for its own account as an incentive payment for its performance as Service Agent. - 27 -
40. GENERAL DESCRIPTION OF THE PROGRAMME The following is an overview of the principal features of the Programme . This overview does not contain all of the information that an investor should consider before investing in Certificates and is qualified in its entirety by the remainder of this Base Prospectus and the applicable Final Terms. Each investor should read the entire Base Prospectus and the applicable Final Terms carefully, especially the risks of investing in the Certificates issued under the Programme discussed under "Risk Factors". Words and expressions defined in "Form of the Certificates" and "Terms and Conditions of the Certificates" shall have the same meanings in the following description. Certain Transaction Documents are described in more detail in "Summary of the Principal Transaction Documents" below. Trustee: EI Sukuk Company Ltd., an exempted company incorporated in accordance with the laws of the Cayman Islands. Obligor: Emirates Islamic Bank PJSC Ownership of the Trustee: The authorised share capital of the Trustee is U.S.$50,000 consisting of 50,000 shares of a nominal or par value of U.S.$1 each, of which 250 shares are fully paid up and issued. The Trustee's entire issued share capital is held by Maples FS Limited, P.O. Box 1093, Boundary Hall, Cricket Square, Grand Cayman, KY1-1102, Cayman Islands under the terms of a trust for charitable purposes. Administration of the Trustee: Maples FS Limited (the "Corporate Administrator") provides, among other things, certain administrative services for and on behalf of the Trustee pursuant to the Corporate Services Agreement dated 25 May 2016 between, inter alios, the Trustee and the Corporate Administrator (the "Corporate Services Agreement"). Arrangers: Emirates Islamic Bank PJSC Standard Chartered Bank Dealers: Citigroup Global Markets Limited Dubai Islamic Bank PJSC Emirates Islamic Bank PJSC Emirates NBD Bank PJSC Standard Chartered Bank and any other Dealers appointed in accordance with the Programme Agreement. Delegate: Citibank N.A., London Branch Principal Paying Agent, Paying Agent, Calculation Agent and Transfer Agent: Citibank N.A., London Branch Registrar: Citigroup Global Markets Europe AG Certain Restrictions: Each issue of Certificates denominated in a currency in respect of which particular laws, guidelines, regulations, restrictions or reporting requirements apply will only be issued in circumstances which comply with such laws, guidelines, regulations, restrictions or reporting requirements from time to time (see "Subscription and Sale"). The proceeds of any issue of Certificates will not - 28 -
41. be accepted in the UK . Programme Size: Up to U.S.$2,500,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement) outstanding at any time. The Trustee may increase the amount of the Programme in accordance with the terms of the Programme Agreement. Issuance in Series: The Certificates will be issued in Series. Each Series may comprise one or more Tranches issued on different Issue Dates. The Certificates will all be subject to identical terms, except that the date of issuance and the amount payable on the first Periodic Distribution Date may be different in respect of different Tranches. The specific terms of each Tranche will be set out in the applicable Final Terms. Distribution: Certificates may be distributed on a syndicated or nonsyndicated basis. Currencies: Subject to any applicable legal or regulatory restrictions, any currency agreed between the Trustee and the relevant Dealer. Maturities: The Certificates will have such maturities as may be agreed between the Trustee and the relevant Dealer, subject to such minimum or maximum maturities as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the Trustee or the relevant Specified Currency. Issue Price: Certificates may only be issued on a fully-paid basis and at an issue price which is at par. Form of Certificates: The Certificates will be issued in registered form as described in "Form of the Certificates". The Certificates of each Tranche of a Series will be represented on issue by ownership interests in a Global Certificate. Clearance and Settlement: Holders of the Certificates must hold their interest in the relevant Global Certificate through Euroclear or Clearstream, Luxembourg. Transfers within and between Euroclear and Clearstream, Luxembourg will be in accordance with the usual rules and operating procedures of the relevant clearance systems. Status: Each Certificate evidences an undivided pro rata ownership interest in the Trust Assets of the relevant Series subject to the terms of the Trust Deed, the Master Murabaha Agreement, the Purchase Undertaking, the Sale Undertaking and the Conditions and is a limited recourse obligation of the Trustee. Each Certificate ranks pari passu, without any preference or priority, with all other Certificates of the relevant Series issued under the Programme. Periodic Distributions: Certificateholders are entitled to receive Periodic Distribution Amounts calculated on the basis specified in the applicable Final Terms. - 29 -
42. Redemption of Certificates : The Certificates of each Series shall be redeemed at the applicable Dissolution Amount, as each such amount shall be specified in the applicable Final Terms. Denomination of Certificates: The Certificates will be issued in such denominations as may be agreed between the Trustee and the relevant Dealer save that the minimum denomination of each Certificate will be such amount as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the relevant Specified Currency, see "Certain Restrictions" above, and save that the minimum denomination of each Certificate admitted to trading on a regulated market within the EEA or offered to the public in a Member State or the United Kingdom in circumstances which require the publication of a prospectus under the Prospectus Regulation will be €100,000 (or, if the Certificates are denominated in a currency other than euro, the equivalent amount in such currency). Dissolution Events: Upon the occurrence of any Dissolution Event, the Certificates may be redeemed on the Dissolution Date at the Final Dissolution Amount together with the accrued Periodic Distribution Amounts (if any) and the relevant Return Accumulation Period may be adjusted accordingly. See Condition 15 (Dissolution Events). Optional Dissolution (Call) Option: If so specified in the applicable Final Terms, all or part of a Series of Certificates may be redeemed prior to the Maturity Date in the circumstances set out in Condition 12.3 (Dissolution at the Option of the Trustee). If, pursuant to such Condition, all of a Series of Certificates are redeemed, the Trust in respect of such Series of Certificates shall be dissolved. Optional Redemption (Investor Put) Option: If so specified in the applicable Final Terms, all or part of a Series of Certificates may be redeemed prior to the Maturity Date of such series in the circumstances set out in Condition 12.4 (Redemption at the Option of the Certificateholders). If, pursuant to such Condition, all of a Series of Certificates are redeemed, the Trust in respect of such Series of Certificates shall be dissolved. Early Dissolution for Tax Reasons: Where: (a) the Trustee has or will become obliged to pay any additional amounts as provided or referred to in Condition 13 (Taxation) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction or, by any authority in or of a Relevant Jurisdiction having a power to tax), which change or amendment becomes effective on or after the Issue Date and such obligation cannot be avoided by the Trustee taking reasonable measures available to it; or (b) the Obligor has or will become obliged to pay additional amounts pursuant to the terms of any of the Transaction Documents as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations - 30 -
43. (including a holding by a court of competent jurisdiction or, by any authority in or of a Relevant Jurisdiction having a power to tax), which change or amendment becomes effective on or after the Issue Date and such obligation cannot be avoided by the Obligor taking reasonable measures available to it, the Trustee may, with the prior written consent of the Obligor, redeem the Certificates in whole but not in part at an amount equal to the relevant Early Dissolution Amount (Tax) together with the accrued Periodic Distribution Amounts (if any) to the Early Tax Dissolution Date. Withholding Tax: All payments in respect of Certificates by the Trustee shall be made without withholding or deduction for, or on account of, any taxes, levies, imposts, duties, fees, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Relevant Jurisdiction. In the event that any such withholding or deduction is made, the Trustee will, save in the limited circumstances provided in Condition 13 (Taxation), be required to pay additional amounts so that the holders of the Certificates will receive the full amounts that they would have received in the absence of such withholding or deduction. Negative Pledge: The Purchase Undertaking contains a negative pledge given by the Obligor. See Condition 5 (Negative Pledge) and "Summary of the Principal Transaction Documents". Covenants: The Trustee has agreed to certain restrictive covenants as set out in Condition 7 (Covenants). Ratings: The Programme is expected to be rated A+ by Fitch. The ratings assigned to each Series of Certificates to be issued under the Programme will be specified in the applicable Final Terms. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. In general, European and UK regulated investors are restricted from using a rating for regulatory purposes if such rating is not issued or endorsed by a credit rating agency established in the EU or the UK and registered under the CRA Regulation (or is not endorsed and published or distributed by subscription by such a credit rating agency in accordance with the CRA Regulation). Listing and admission to trading: Application has been made to Euronext Dublin for Certificates issued under the Programme to be admitted to the Official List and for such Certificates to be admitted to trading on its Regulated Market. Application has also been made to the DFSA for the Certificates issued under the Programme to be admitted to the DFSA Official List and to Nasdaq Dubai for such Certificates to be admitted to trading on Nasdaq Dubai. Certificates may be listed or admitted to trading, as the - 31 -
44. case may be , on other or further stock exchanges or markets agreed between the Trustee and the relevant Dealer in relation to the Series. Certificates which are neither listed nor admitted to trading on any market may also be issued. The applicable Final Terms will state whether or not the relevant Certificates are to be listed and/or admitted to trading and, if so, on which stock exchanges and/or markets. Transaction Documents: The Transaction Documents in relation to each Series shall comprise the Agency Agreement, the Master Trust Deed, each Supplemental Trust Deed, the Programme Agreement and each Subscription Agreement, the applicable Final Terms, the Master Murabaha Agreement (together with all documents, notices of request to purchase, offer notices, acceptances, notices and confirmations delivered or entered into as contemplated by the Master Murabaha Agreement in connection with the relevant Series) and each Murabaha Contract, the Master Purchase Agreement, each Supplemental Purchase Agreement, the Service Agency Agreement, the Purchase Undertaking, the Sale Undertaking and the Corporate Services Agreement. Governing Law and Jurisdiction: The Certificates and any non-contractual obligations arising out of or in connection with the Certificates will be governed by, and shall be construed in accordance with, English law. The Agency Agreement, the Master Trust Deed, each Supplemental Trust Deed, the Programme Agreement and each Subscription Agreement, the Master Murabaha Agreement (together with all documents, notices of request to purchase, offer notices, acceptances, notices and confirmations delivered or entered into as contemplated by the Master Murabaha Agreement in connection with the relevant Series) and each Murabaha Contract, the Purchase Undertaking, the Sale Undertaking, the Service Agency Agreement, and any non-contractual obligations arising out of, relating to or having any connection with such Transaction Documents will be governed by, and shall be construed in accordance with, English law. In respect of any dispute, claim, difference or controversy under any such Transaction Document, the parties thereto have each consented to arbitration in accordance with the LCIA Arbitration Rules unless, inter alios, the Trustee, the Obligor (in respect of the Sale Undertaking only), the Delegate, or the Agents as the case may be, elects to have the dispute, claim, difference or controversy resolved by a court, in which case the English and DIFC courts will each have nonexclusive jurisdiction to settle such dispute, claim, difference or controversy. The Master Purchase Agreement and any non-contractual obligations arising out of, relating to or having any connection with the Master Purchase Agreement will be governed by the laws of Dubai and, to the extent applicable in Dubai, the federal laws of the UAE. The - 32 -
45. courts of Dubai have jurisdiction to hear all disputes relating to the Master Purchase Agreement . The Corporate Services Agreement is governed by the laws of the Cayman Islands. The courts of the Cayman Islands have jurisdiction to hear all disputes relating to the Corporate Services Agreement. Selling Restrictions: There are restrictions on the offer, sale and transfer of the Certificates in the Cayman Islands, the Dubai International Financial Centre, the EEA (including the UK), Hong Kong, the Kingdom of Bahrain, the Kingdom of Saudi Arabia, Malaysia, the PRC, Singapore, the State of Qatar (including the Qatar Financial Centre), the UAE (excluding the Dubai International Financial Centre), the United States, and such other restrictions as may be required in connection with the offering and sale of a particular Series of Certificates (see "Subscription and Sale"). United States Selling Restrictions: Regulation S, Category 2. - 33 -
46. FORM OF THE TRUST CERTIFICATES The Certificates of each Series will be in registered form . Certificates will be issued outside the United States in reliance on Regulation S under the U.S. Securities Act of 1933, as amended ("Regulation S"). Each Series of Certificates will initially be represented by a global trust certificate in registered form (a "Global Certificate"). Global Certificates will be deposited with a common depositary (the "Common Depositary") for Euroclear Bank SA/NV ("Euroclear") and Clearstream Banking, S.A. ("Clearstream, Luxembourg") and will be registered in the name of a nominee for the Common Depositary. Persons holding beneficial interests in Global Certificates will be entitled or required, as the case may be, under the circumstances described below, to receive physical delivery of definitive Certificates in fully registered form (the "Individual Certificates"). Payments of any amount in respect of the Global Certificates will, in the absence of provision to the contrary, be made to the person shown on the Register (as defined in Condition 2.2 (Register)) as the registered holder of the Global Certificates. None of the Trustee, any Paying Agent or the Registrar will have any responsibility or liability for any aspect of the records relating to or payments or deliveries made on account of beneficial ownership interests in the Global Certificates or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Payment of any amounts in respect of Individual Certificates will, in the absence of provision to the contrary, be made to the persons shown on the Register on the relevant Record Date (as defined in Condition 1.1 (Definitions)) immediately preceding the due date for payment in the manner provided in that Condition. Interests in a Global Certificate will be exchangeable (free of charge), in whole but not in part, for Individual Certificates only upon the occurrence of an Exchange Event. The Trustee will promptly give notice to Certificateholders in accordance with Condition 18 (Notices) if an Exchange Event occurs. For these purposes, "Exchange Event" means that: (i) a Dissolution Event (as defined in Condition 15 (Dissolution Events)) has occurred and is continuing; or (ii) the Trustee has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and, in any such case, no successor clearing system is available. In the event of the occurrence of an Exchange Event, Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any holder of an interest in such Global Certificate) may give notice to the Registrar requesting exchange and, in the event of the occurrence of an Exchange Event as described in (ii) above, the Trustee may also give notice to the Registrar requesting exchange. Any such exchange shall occur not later than 10 days after the date of receipt of the first relevant notice by the Registrar. For so long as any of the Certificates are represented by a Global Certificate held on behalf of Euroclear and/or Clearstream, Luxembourg each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular face amount of such Certificates (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the face amount of such Certificates standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Trustee, the Delegate and their respective agents as the holder of such face amount of such Certificates for all purposes other than with respect to any payment on such face amount of such Certificates, for which purpose the registered holder of the relevant Global Certificate shall be treated by the Trustee and its agents as the holder of such face amount of such Certificates in accordance with and subject to the terms of the relevant Global Certificate and the expressions "Certificateholder" and "holder of Certificates" and related expressions shall be construed accordingly. Any reference herein to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system as may be approved by the Trustee and the Principal Paying Agent. - 34 -
47. APPLICABLE FINAL TERMS [MiFID II product governance / professional investors and ECPs only target market – Solely for the purposes of [the/each] manufacturer's product approval process, the target market assessment in respect of the Certificates has led to the conclusion that: (i) the target market for the Certificates is eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (as amended, "MiFID II"); and (ii) all channels for distribution of the Certificates to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Certificates (a "distributor") should take into consideration the manufacturer['s/s'] target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Certificates (by either adopting or refining the manufacturer['s/s'] target market assessment) and determining appropriate distribution channels.] [Singapore Securities and Futures Act Product Classification – Solely for the purposes of its obligations pursuant to sections 309B(1)(a) and 309B(1)(c) of the Securities and Futures Act (Chapter 289 of Singapore) (the SFA), the Trustee has determined, and hereby notifies all relevant persons (as defined in Section 309A of the SFA) that the Certificates are ["prescribed capital markets products"]/[capital markets products other than "prescribed capital markets products"] (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018).] Final Terms dated [] EI SUKUK COMPANY LTD. Legal entity identifier (LEI): [549300IIDFP0RTSSG071] Issue of [Aggregate Face Amount of Tranche] [Title of Certificates] under the U.S.$2,500,000,000 Certificate Issuance Programme PART A – CONTRACTUAL TERMS [Terms used herein shall be deemed to be defined as such for the purposes of the terms and conditions (the "Conditions") set forth in the base prospectus dated 29 July 2020 [and the supplement[s] to the base prospectus dated [] [and []]] which [together] constitute[s] a base prospectus for the purposes of Regulation (EU) 2017/1129 (the "Prospectus Regulation") (the "Base Prospectus"). [This document constitutes the Final Terms of the Certificates described herein for the purposes of the Prospectus Regulation and must be read in conjunction with the Base Prospectus.]1 [Terms used herein shall be deemed to be defined as such for the purposes of the terms and conditions (the "Conditions") set forth in the base prospectus dated [16 May 2016] [and the supplement to the base prospectus dated []], which are incorporated by reference into the base prospectus dated 29 July 2020]. This document constitutes the Final Terms of the Certificates described herein for the purposes of Regulation (EU) 2017/1129 (the "Prospectus Regulation") and must be read in conjunction with the base prospectus dated [16 May 2016] [and the supplement[s] to the base prospectus dated [] [and []]] which [together] constitute[s] a base prospectus (the "Base Prospectus") for the purposes of the Prospectus Regulation.] Full information on the Trustee and the offer of the Certificates is only available on the basis of the combination of these Final Terms and the Base Prospectus. The Base Prospectus is available for viewing: (i) on the website of Euronext Dublin at http://www.ise.ie; (ii) on the website of Nasdaq Dubai at http://www.nasdaqdubai.com; and (iii) during normal business hours at the registered office of the Trustee at P.O. Box 6564, Dubai, United Arab Emirates and the specified office of the Principal Paying Agent at Winchester House, 1 Great Winchester Street, London EC2N 2DB. 1 1. Trustee: EI Sukuk Company Ltd. 2. (a) Series Number: [] (b) [Tranche: []] Delete where the Certificates are neither admitted to trading on a regulated market in the EEA nor offered in the EEA in circumstances where a prospectus is required to be published under the Prospectus Regulation. - 35 -
48. (c) [Date on which the Certificates which are Additional Certificates will be consolidated and form a single Series:] [The Certificates which are Additional Certificates will be consolidated and form a single Series with [identify earlier Tranche(s)] on [insert date]]/[Not Applicable] 3. Specified Currency: [] 4. Aggregate Face Amount: [] (a) [Series: []] (b) [Tranche: []] 5. Issue Price: [] per cent. of the Aggregate Nominal Amount [plus accrued Periodic Distribution Amounts from []] 6. (a) Specified Denominations: [] (b) Calculation Amount: [] (a) Issue Date: [] (b) Return Accumulation Commencement Date: [[]/Issue Date/Not Applicable] 7. 8. Maturity Date: 9. Periodic Basis: [] Distribution Amount [[] per cent. Fixed Periodic Distribution Amount] [[] +/- [] per cent. Floating Periodic Distribution Amount] 10. Dissolution Basis: Subject to any purchase and cancellation or early redemption, the Certificates will be redeemed on the Maturity Date at 100 per cent. of their nominal amount 11. Change of Periodic Distribution Basis: [] [Not Applicable] 12. Call/Put Options: [Optional Redemption (Investor Put) Option] [Optional Dissolution (Call) Option] [Not Applicable] 13. Status: Senior 14. Date of Board approval for issuance of Certificates obtained: [] PROVISIONS RELATING TO PERIODIC DISTRIBUTIONS (IF ANY) PAYABLE 15. Fixed Periodic Provisions (a) Rate(s): Distribution [Applicable/Not Applicable] [] per cent. per annum [payable [annually/semiannually/quarterly/monthly] in arrear on each Periodic Distribution Date] - 36 -
49. (b) Periodic Date(s): Distribution [] in each year [up to and including the Maturity Date] (c) Fixed Amount(s): [] per Calculation Amount (d) Broken Amount(s): [[] per Calculation Amount, payable on the Periodic Distribution Date falling [in/on] []]/[Not Applicable] (e) Day Count Fraction: [Actual/Actual (ICMA)] [30/360] (f) Determination Date(s): [] in each year (g) Business Day Convention: [Not Applicable]/[Floating Rate Convention/ Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention] (h) Periodic Distribution Date Adjustment: [Applicable]/[Not Applicable] (Applicable to Certificates only) (i) Business Centre(s): (Applicable to Certificates only) 16. RMB Floating Periodic Provisions: []/[Not Applicable] RMB Distribution [Applicable/Not Applicable] (a) Specified Periodic Distribution Dates: [] in each year[, subject to adjustment in accordance with (c) below] (b) Specified Period: []/[Not Applicable] (c) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention]/[Not Applicable] (d) Additional Centre(s): [[]/Not Applicable] (e) Screen Determination: Business Rate (i) Reference Rate: (ii) Periodic Distribution Determination Date(s): [Applicable]/[Not Applicable] [AUD LIBOR]/[BBSW]/[CNH HIBOR]/[EIBOR]/[EURIBOR]/[HIBOR]/[LIBID ]/[LIBOR]/[LIMEAN]/[JPY LIBOR]/[PRIBOR]/[SAIBOR]/[SHIBOR]/[SIBO R]/[TIBOR]/[TRLIBOR] [] - 37 -
50. (f) (iii) Relevant Screen Page: [] (iv) Relevant Time [] ISDA Determination: [Applicable]/[Not Applicable] (i) [Floating Option:] Rate [] (ii) [Designated Maturity:] [] (iii) [Reset Date:] [] (iv) [ISDA Benchmarks Supplement:] [Applicable]/[Not Applicable] (g) Margin: [+/-][] per cent. per annum (h) Day Count Fraction: [Actual/Actual] [Actual/365 (Fixed)] [Actual/365 (Sterling)] [Actual/360] [30/360] [360/360] [Bond Basis] [30E/360] [Eurobond Basis] [Actual/360] [Actual/365] (i) Calculation Agent: [Principal Paying Agent]/[] PROVISIONS RELATING TO DISSOLUTION 17. 18. 19. Optional Dissolution (Call) Option: [Applicable/Not Applicable] (a) Optional Dissolution Amount (Call): [] per Calculation Amount (b) Optional Date(s): [] (c) Notice Period: Dissolution Minimum Notice Period: [30] days Maximum Notice Period: [60] days Final Dissolution Amount: [] per Calculation Amount (a) Early Dissolution Amount (Tax) (following early dissolution for tax reasons): [Not Applicable/Final Dissolution Amount/[] per Calculation Amount] (b) Notice Period: Minimum Notice Period: [30] days Maximum Notice Period: [60] days Dissolution Amount pursuant to Condition 15 (Dissolution Events): [] per Calculation Amount - 38 -
51. PROVISIONS RELATING TO OPTIONAL REDEMPTION 20 . Optional Redemption (Investor Put) Option: [Applicable/Not Applicable] (a) Optional Date(s): Redemption [] (b) Optional Amount: Redemption [] per Calculation Amount (c) Notice Period: Minimum Notice Period: [15] days Maximum Notice Period: [30] days GENERAL PROVISIONS APPLICABLE TO THE TRUST CERTIFICATES 21. Form of Certificates: Global Certificates exchangeable for Certificates in definitive registered form in the limited circumstances specified in the Global Certificate 22. Additional Financial Centre(s) or other special provisions relating to Payment Dates: [Not Applicable]/[] 23. Renminbi Currency Event: [Applicable]/[Not Applicable] 24. Details of Transaction Account: [EI Sukuk Company Ltd.] Transaction Account No: [] for Series No. [] SIGNED on behalf of EI Sukuk Company Ltd. By: _____________________________________ Duly authorised SIGNED on behalf of Emirates Islamic Bank PJSC By: _____________________________________ Duly authorised By: _____________________________________ Duly authorised - 39 -
52. PART B – OTHER INFORMATION 1. ADMISSION TO TRADING (a) Admission to trading: [Application has been made by the Trustee (or on its behalf) for the Certificates to be admitted to trading on [the Regulated Market of Euronext Dublin] [and] [Nasdaq Dubai] and, listing on the [Official List of Euronext Dublin] [and the] [DFSA Official List] with effect from [].] [Not Applicable] (b) 2. Estimate of total expenses related to admission to trading: RATINGS [] [The Certificates to be issued [have been]/[are expected to be] rated]/[are unrated][The following ratings reflect ratings assigned to Certificates of this type issued under the Programme generally]: [Fitch: []] [Fitch is established in the EEA or the United Kingdom and registered under Regulation (EU) No 1060/2009, as amended (the "CRA Regulation").] 3. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE [Save for any fees payable to the [Managers/Dealer], so far as each of the Trustee and the Obligor are aware, no person involved in the issue of the Certificates has an interest material to the offer. The [Managers/Dealers] and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform other services for, the Trustee and, the Obligor and each of their respective affiliates in the ordinary course of business for which they may receive fees.] 4. YIELD (Fixed Rate Periodic Distribution Certificates only) 5. USE OF PROCEEDS 6. [] per cent. per annum [quarterly]/[semi- annual] basis or (a) Use of proceeds: See "Use of Proceeds" in the Base Prospectus (b) Estimated amount of net proceeds: [] a OPERATIONAL INFORMATION (a) ISIN Code: [] (b) Common Code: [] (c) Additional code: [CFI Code: []/[As set out on the website of the Association of Numbering Agencies (ANNA) or alternatively sourced from the responsible National Numbering Agency that assigned the ISIN]/[Not Applicable]] identification [FISN: []/[As set out on the website of the Association of Numbering Agencies (ANNA) or alternatively sourced from the responsible National - 40 -
53. Numbering Agency that assigned the ISIN ]/[Not Applicable]] [] 7. (d) Any clearing system(s) other than Euroclear Bank S.A./N.V. and Clearstream Banking, SA and the relevant identification number(s); [Not Applicable]/[] (e) Delivery: Delivery [against]/[free of] payment (f) Names and addresses of additional Paying Agent(s) (if any): [] (g) Benchmark Administrator[s]: [[] is provided by []. [As at the date hereof, [] [appears]/[does not appear] in the register of administrators and benchmarks established and maintained by ESMA pursuant to Article 36 of the Benchmarks Regulation]/[As far as the Trustee is aware, as at the date hereof, [] does not fall within the scope of the Benchmarks Regulation]/[As far as the Trustee is aware, the transitional provisions in Article 51 of the Benchmarks Regulation apply, such that [] is not currently required to obtain authorisation/registration (or, if located outside the EU or the UK, recognition, endorsement or equivalence)]/[Not Applicable]] THIRD PARTY INFORMATION [[Relevant third party information] has been extracted from [specify source]. Each of the Trustee and the Obligor confirms that such information has been accurately reproduced and that, so far as it is aware, and is able to ascertain from information published by [specify source], no facts have been omitted which would render the reproduced information inaccurate or misleading.]/[Not Applicable] 8. DISTRIBUTION (a) Method of distribution: [Syndicated]/[Non-syndicated] (b) Date of Agreement: [] (c) Stabilisation Manager(s) (if any): [Not Applicable]/[] (d) If non-syndicated, name of relevant Dealer: [Not Applicable]/[] Subscription - 41 -
54. TERMS AND CONDITIONS OF THE TRUST CERTIFICATES The following is the text of the Terms and Conditions of the Certificates , which (save for the text in italics) will be endorsed on each Certificate in definitive registered form issued under the Programme and will apply to each Global Certificate. EI Sukuk Company Ltd. (in its capacity as issuer and as trustee, the "Trustee") has established a programme (the "Programme") for the issuance of trust certificates (the "Certificates" and each a "Certificate") in a maximum aggregate face amount of U.S.$2,500,000,000 as may be increased in accordance with the terms of the Master Trust Deed (as defined below). Certificates issued under the Programme are issued in series (each a "Series"). The final terms for a Certificate (or the relevant provisions thereof) are set out in Part A of the applicable Final Terms attached to or endorsed on a Certificate which supplement and complete these Terms and Conditions (the "Conditions"). References to the "applicable Final Terms" are to the final terms (or the relevant provisions thereof) attached to or endorsed on each Certificate. Each of the Certificates will represent an undivided pro rata ownership interest in the relevant Trust Assets (as defined below) which are held by the Trustee on trust (the "Trust") for the benefit of the registered holders of the Certificates pursuant to: (i) an amended and restated master trust deed dated 29 July 2020 (the "Master Trust Deed") and made between the Trustee, Emirates Islamic Bank PJSC as obligor (the "Obligor") and Citibank N.A., London Branch as the Trustee's delegate (the "Delegate"); and (ii) the supplemental trust deed(s) in respect of the relevant Series (each, a "Supplemental Trust Deed" and, together with the Master Trust Deed, the "Trust Deed") between the same parties and dated the relevant Issue Date. In these Conditions, references to "Certificates" shall be references to the Certificates which are the subject of the applicable Final Terms. In these Conditions and in any applicable Final Terms, "Tranche" means Certificates which are identical in all respects (including as to listing and admission to trading) and "Series" means a Tranche of Certificates together with any further Tranche or Tranches of Certificates which are: (a) expressed to be consolidated and form a single series; and (b) identical in all respects (including as to listing and admission to trading) except for their respective Issue Dates and/or Issue Price. The Certificates of each Series shall form a separate series and these Conditions shall apply mutatis mutandis separately and independently to the Certificates of each Series and, in these Conditions, the expressions "Certificates", "Certificateholders" and related expressions shall be construed accordingly. Payments relating to the Certificates will be made pursuant to an amended and restated agency agreement dated 29 July 2020 (the "Agency Agreement") made between the Trustee, the Obligor and Citigroup Global Markets Europe AG in its capacity as registrar (in such capacity, the "Registrar", which expression shall include any successor), Citibank N.A., London Branch in its capacities as principal paying agent (in such capacity, the "Principal Paying Agent", which expression shall include any successor), transfer agent (in such capacity, the "Transfer Agent", which expression shall include any successor) and calculation agent, and the paying agents appointed therein (together with the Principal Paying Agent, the "Paying Agents"). The Principal Paying Agent, the Paying Agents, the Calculation Agent, the Transfer Agent and the Registrar are together referred to as the "Agents". Copies of the documents set out below (i) are available for inspection by holders and obtainable free of charge at the specified office for the time being of the Principal Paying Agent or (ii) will, at the option of the Principal Paying Agent, be available by email at a holder's request (subject to provision of proof of holding satisfactory to the Principal Paying Agent and the Obligor), during normal business hours on any weekday (excluding Saturdays, Sundays and public holidays). The Certificateholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the documents set out below: (a) an amended and restated master purchase agreement between the Trustee and the Obligor dated 29 July 2020 (the "Master Purchase Agreement"); (b) a supplemental purchase agreement (the "Supplemental Purchase Agreement" and, together with the Master Purchase Agreement, the "Purchase Agreement") between the same parties to the Master Purchase Agreement and dated the relevant Issue Date; - 42 -
55. (c) an amended and restated service agency agreement between, inter alia, the Trustee and the Obligor as service agent (the "Service Agent") dated 29 July 2020 (the "Service Agency Agreement"); (d) an amended and restated purchase undertaking entered into by the Obligor dated 29 July 2020 (the "Purchase Undertaking"); (e) an amended and restated sale undertaking entered into by the Trustee and the Obligor dated 29 July 2020 (the "Sale Undertaking"); (f) a master murabaha agreement dated 29 July 2020 between the Trustee and the Obligor (together with all documents, notices of request to purchase, offer notices, acceptances, notices and confirmations delivered or entered into as contemplated by the Master Murabaha Agreement in connection with the relevant Series) (the "Master Murabaha Agreement") and each relevant Murabaha Contract (as defined in the Master Murabaha Agreement); (g) the Trust Deed; (h) the Agency Agreement; (i) a corporate services agreement between MaplesFS Limited (as provider of corporate services to the Trustee) and the Trustee dated 25 May 2016 (the "Corporate Services Agreement"); and (j) the applicable Final Terms, as each may be amended and restated and/or supplemented from time to time. Each initial Certificateholder, by its acquisition and holding of its interest in a Certificate, shall be deemed to authorise and direct the Trustee (acting as trustee on behalf of the Certificateholders) to: (i) apply the proceeds of the issue of the Certificates in accordance with the terms of the Transaction Documents (as defined below); and (ii) enter into, and perform its obligations under and in connection with, each Transaction Document, subject to the terms and conditions of the Trust Deed and these Conditions. 1. INTERPRETATION 1.1 Definitions Words and expressions defined in the Trust Deed and the Agency Agreement or used in the applicable Final Terms shall have the same meanings where used in the Conditions unless the context otherwise requires or unless otherwise stated and provided that, in the event of inconsistency between any such document and the applicable Final Terms, the applicable Final Terms will prevail. In addition, in these Conditions the following expressions have the following meanings: "Additional Assets" has the meaning given to such term in the Sale Undertaking; "Additional Assets Exercise Price" has the meaning given to such term in the Sale Undertaking; "Additional Assets Sale Agreement" means the agreement substantially in the form as set out in Schedule 5 (Form of Additional Assets Sale Agreement) to the Sale Undertaking; "Additional Business Centre" means the city or cities specified as such in the applicable Final Terms; "Additional Certificates" means, in respect of a Series, Certificates issued pursuant to Condition 21 (Further Issuances); "Additional Financial Centre" means the city or cities specified as such in the applicable Final Terms; "Auditors" means a firm of independent auditors of good repute appointed by the Obligor; "Broken Amount" has the meaning given in the applicable Final Terms; - 43 -
56. "Calculation Agent" means the Principal Paying Agent (including any successor) or such other Person specified in the applicable Final Terms as the party responsible for calculating the Periodic Distribution Amount and/or such other amount(s) as may be specified in the applicable Final Terms in accordance with Condition 9 (Floating Periodic Distribution Provisions); "Calculation Amount" has the meaning given in the applicable Final Terms; "Clearstream, Luxembourg" means Clearstream Banking, S.A.; "Clearing System" means Euroclear, Clearstream, Luxembourg and/or any additional or alternative clearing system as may be approved by the Trustee and the Principal Paying Agent, as applicable; "Commodities" has the meaning given to it in the Master Murabaha Agreement; "Commodity Murabaha Investment" has the meaning given to it in the Master Murabaha Agreement; "Commodity Purchase Price" has the meaning given to it in the Master Murabaha Agreement; "Commodity Supplier" has the meaning given to it in the Master Murabaha Agreement; "Deferred Sale Price" has the meaning given to it in the Master Murabaha Agreement; "Designated Maturity" means, in relation to Screen Rate Determination, the period of time designated in the Reference Rate and, in relation to ISDA Determination, the date set out in the applicable Final Terms; "Dissolution Amount" means, as appropriate, the Final Dissolution Amount, the Early Dissolution Amount (Tax), the Optional Dissolution Amount (Call), Optional Redemption Amount or such other amount in the nature of a redemption amount to be paid on a Dissolution Date as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; "Dissolution Date" means, as the case may be: (a) the Maturity Date; (b) the Dissolution Event Redemption Date; (c) the Early Tax Dissolution Date; (d) an Optional Dissolution Date; or (e) an Optional Redemption Date; "Dissolution Event Redemption Date" has the meaning given to it in Condition 15 (Dissolution Events); "Distribution Period" means, in relation to a Series, the period beginning on (and including) the Issue Date of the first Tranche under that Series and ending on (but excluding) the relevant First Distribution Date and each successive period beginning on (and including) a Periodic Distribution Date and ending on (but excluding) the next succeeding Periodic Distribution Date; "Distribution Determination Date" means, in relation to a Series, the Business Day immediately preceding each Periodic Distribution Date; "Early Dissolution Amount (Tax)" means the Early Dissolution Amount (Tax) as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; "Early Tax Dissolution Date" has the meaning given to it in Condition 12.2 (Early Dissolution for Tax Reasons); "Eligibility Criteria" has the meaning given to it in the Master Purchase Agreement; "Eligible Wakala Assets" has the meaning given to it in the Master Purchase Agreement; "Euroclear" means Euroclear Bank SA/NV; "Exercise Price" has the meaning given to it in the Sale Undertaking or, as the case may be, the Purchase Undertaking; - 44 -
57. "Extraordinary Resolution" has the meaning given in Schedule 4 to the Master Trust Deed; "Final Dissolution Amount" means the Final Dissolution Amount as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; "First Distribution Date" means, in relation to each Series, the date specified as such in the relevant Service Agency Scope; "Fixed Amount" means the Fixed Amount as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; "Ijara Asset" has the meaning given to it in the Master Purchase Agreement; "Ijara Contract" has the meaning given to it in the Master Purchase Agreement; "Impaired Wakala Asset Exercise Price" has the meaning given to it in the Purchase Undertaking; "Income Revenues" has the meaning given to it in the Service Agency Agreement; "Initial Wakala Assets" has the meaning given to it in the Master Purchase Agreement; "Initial Wakala Portfolio" has the meaning given to it in the Master Purchase Agreement; "ISDA Benchmarks Supplement" means the Benchmarks Supplement (as amended and updated as at the date of issue of the first Tranche of the Certificates of the relevant Series (as specified in the applicable Final Terms)) published by the International Swaps and Derivatives Association, Inc; "ISDA Definitions" means the 2006 ISDA Definitions (as supplemented, amended and updated as at the date of issue of the first Tranche of the Certificates of the relevant Series (as specified in the applicable Final Terms)) as published by the International Swaps and Derivatives Association, Inc. including, if specified in the relevant Final Terms, the ISDA Benchmarks Supplement (unless otherwise specified in the applicable Final Terms); "Issue Date" means the issue date of each Tranche of Certificates under a Series as specified in the applicable Final Terms; "Issue Price" means the issue price payable by Certificateholders of each Tranche of Certificates under a Series as specified in the applicable Final Terms; "Liquidity Facility" has the meaning given to it in the Service Agency Agreement; "Margin" means the Margin as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; "Maturity Date" means, in respect of each Series, the date so specified in the applicable Final Terms; "Maximum Notice Period" has the meaning given in the applicable Final Terms; "Minimum Notice Period" has the meaning given in the applicable Final Terms; "Murabaha Contract" has the meaning given to it in the Master Murabaha Agreement; "Murabaha Investment Amount" has the meaning given to it in the Master Murabaha Agreement; "Murabaha Profit" has the meaning given to it in the Master Murabaha Agreement; "Murabaha Profit Instalment" has the meaning given to it in the Master Murabaha Agreement; "Notice of Request to Purchase" has the meaning given to it in the Master Murabaha Agreement; - 45 -
58. "Offer Notice" has the meaning given to it in the Master Murabaha Agreement; "Optional Dissolution Amount (Call)" means the Optional Dissolution Amount (Call) as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; "Optional Dissolution Date" means the date specified in the applicable Final Terms; "Optional Put Wakala Assets" has the meaning given to it in the Purchase Undertaking; "Optional Put Exercise Price" has the meaning given to it in the Purchase Undertaking; "Optional Redemption Amount" means the Optional Redemption Amount as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; "Optional Redemption Date" means the Optional Redemption Date or Optional Redemption Dates, as the case may be, as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; "Other Tangible Asset" has the meaning given to it in the Master Purchase Agreement; "Outstanding Liquidity Amount" has the meaning given to it in the Sale Undertaking or, as the case may be, the Purchase Undertaking; "Payment Business Day" means: (a) a day on which banks in the relevant place of surrender of the Individual Certificate are open for presentation and payment of registered securities and for dealings in foreign currencies; and (b) in the case of payment by transfer to an account: (i) if the currency of payment is euro, a TARGET Settlement Day and a day on which dealings in foreign currencies may be carried on in each (if any) Additional Financial Centre; or (ii) if the currency of payment is not euro or Renminbi, any day which is a day on which dealings in foreign currencies may be carried on in the principal financial centre of the currency of payment and in each (if any) Additional Financial Centre; or (iii) in relation to any sum payable in Renminbi, a day (other than a Saturday, Sunday or public holiday) on which banks and foreign exchange markets are open for business and settlement of Renminbi payments in Hong Kong; "Periodic Distribution Amount" means, in relation to a Certificate and a Return Accumulation Period, the amount of profit distribution payable in respect of that Certificate for that Return Accumulation Period which amount may be a Fixed Amount, a Broken Amount or an amount otherwise calculated in accordance with Condition 8 (Fixed Periodic Distribution Provisions) or Condition 9 (Floating Periodic Distribution Provisions); "Periodic Distribution Date Adjustment" has the meaning given to it in the applicable Final Terms; "Periodic Distribution Determination Date" has the meaning given to it in the applicable Final Terms; "Person" means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality; "Principal Collection Account" has the meaning given to it in the Service Agency Agreement; "Principal Revenues" has the meaning given to it in the Service Agency Agreement; - 46 -
59. "Rate" means the rate or rates (expressed as a percentage per annum) representing a defined share of the profits distributable by the Trustee in respect of the Certificates specified in the applicable Final Terms or calculated or determined in accordance with the provisions of these Conditions and/or the applicable Final Terms; "Rating Agencies" means the rating agencies, each of which has assigned a credit rating to the Certificates, and their successors, and each a "Rating Agency"; "Record Date" means: (a) in the case of the payment of a Periodic Distribution Amount, (i) in respect of a Global Certificate, at the close of business (being for this purpose a day on which Euroclear and Clearstream, Luxembourg are open for business) before the relevant Periodic Distribution Date, and (ii) in respect of Certificates in definitive form, the date falling on the fifteenth day before the relevant Periodic Distribution Date; and, (b) in the case of the payment of a Dissolution Amount or Optional Redemption Amount, the date falling two Payment Business Days before the relevant Dissolution Date or Optional Redemption Date, as the case may be; "Reference Banks" means the principal London office of each of four major banks engaged in the London, Eurozone or Emirates inter-bank market selected by or on behalf of the Trustee, provided that once a Reference Bank has first been selected by the Trustee or its duly appointed representative, such Reference Bank shall not be changed unless it ceases to be capable of acting as such; "Reference Rate" means one of the following benchmark rates (as specified in the applicable Final Terms) in respect of the currency and period specified in the applicable Final Terms: (a) Australia Bank Bill Swap ("BBSW"); (b) Australian dollar LIBOR ("AUD LIBOR"); (c) CNH Hong Kong interbank offered rate ("CNH HIBOR"); (d) Emirates interbank offered rate ("EIBOR"); (e) Euro-Zone interbank offered rate ("EURIBOR"); (f) Hong Kong interbank offered rate ("HIBOR"); (g) Japanese Yen LIBOR ("JPY LIBOR"); (h) London interbank bid rate ("LIBID"); (i) London interbank mean rate ("LIMEAN"); (j) London interbank offered rate ("LIBOR"); (k) Prague interbank offered rate ("PRIBOR"); (l) Saudi Arabia interbank offered rate ("SAIBOR"); (m) Shanghai interbank offered rate ("SHIBOR"); (n) Singapore interbank offered rate ("SIBOR"); (o) Tokyo interbank offered rate ("TIBOR"); and (p) Turkish Lira interbank offered rate ("TRLIBOR" or "TRYLIBOR"). "Relevant Date" means, in relation to any payment, whichever is the later of: (a) the date on which the payment in question first becomes due; and (b) if the full amount payable has not been received in the principal financial centre of the currency of payment by the Principal Paying Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Certificateholders by the Trustee in accordance with Condition 18 (Notices); - 47 -
60. "Relevant Jurisdiction" means, in respect of the Trustee, the Cayman Islands and, in respect of the Obligor, the United Arab Emirates or, in either case, any political subdivision or authority thereof or therein having the power to tax; "Relevant Screen Page" means the page, section or other part of a particular information service specified as the Relevant Screen Page in the applicable Final Terms, or such other page, section or other part as may replace it on that information service or such other information service, in each case, as may be nominated by the Person providing or sponsoring the information appearing there for the purpose of displaying rates or prices comparable to the Reference Rate; "Relevant Time" means the time specified as such in the applicable Final Terms; "Required Amount" means, in relation to each Series and each relevant Periodic Distribution Date, an amount equal to the Periodic Distribution Amount payable on the relevant Periodic Distribution Date; "Return Accumulation Commencement Date" has the meaning given to it in the applicable Final Terms; "Return Accumulation Period" means the period from (and including) a Periodic Distribution Date (or the Return Accumulation Commencement Date) to (but excluding) the next (or first) Periodic Distribution Date; "Revenues" has the meaning given to it in the Service Agency Agreement; "Sale Agreement" means any sale agreement entered into in connection with the Purchase Undertaking or the Sale Undertaking, as the context so requires; "Service Agency Scope" means, in relation to a Series, the scope of services substantially in the form set out in Schedule 1 (Service Agency Scope) of the Service Agency Agreement; "Service Agent Liabilities Amount" has the meaning given to it in the Service Agency Agreement; "Services" has the meaning given to it in the Service Agency Agreement; "Shari'a Compliant Deposit" has the meaning given to it in the Service Agency Agreement; "Specified Denomination" means the amount(s) specified as such in the applicable Final Terms; "Specified Currency" means the currency specified as such in the applicable Final Terms or, if none is specified, the currency in which the Certificates are denominated; "Specified Period" has the meaning given to it in the applicable Final Terms; "Specified Periodic Distribution Date" has the meaning given to it in the applicable Final Terms; "Subsidiary" means, in relation to any Person (the "first Person") at any particular time, any other Person (the "second Person"): (a) whose affairs and policies the first Person controls or has the power to control, whether by ownership of share capital, the possession of voting power, contract, trust, the power to appoint or remove members of the governing body of the second Person or otherwise; or (b) whose financial statements are, in accordance with applicable law and generally accepted accounting principles, consolidated with those of the first Person; "Sukuk Portfolio" has the meaning given to it in the Service Agency Agreement; "Tangible Assets" has the meaning given to it in the Master Purchase Agreement; - 48 -
61. "TARGET Settlement Day" means any day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET2) System (the "TARGET2 System") is open; "Tax Event" has the meaning given to it in Condition 12.2 (Early Dissolution for Tax Reasons); "Taxes" means any taxes, levies, imposts, duties, fees, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Relevant Jurisdiction, and all interest, penalties or similar liabilities with respect thereto; "Transaction Account" means the account in the Trustee's name, details of which are specified in the relevant Supplemental Trust Deed(s) and the applicable Final Terms; "Transaction Documents" the Agency Agreement, the Trust Deed, the Programme Agreement and each Subscription Agreement, the applicable Final Terms, the Master Murabaha Agreement (together with all documents, notices of request to purchase, offer notices, acceptances, notices and confirmations delivered or entered into as contemplated by the Master Murabaha Agreement in connection with the relevant Series) and each Murabaha Contract, the Purchase Agreement, the Service Agency Agreement, the Purchase Undertaking, the Sale Undertaking and the Corporate Services Agreement; "Trust Assets" means the assets, rights, cash or investments described in Condition 6.1 (Trust Assets); "Value" has the meaning given to it in the Service Agency Agreement; "Wakala Assets" has the meaning given to it in the Master Purchase Agreement; and "Wakala Portfolio" has the meaning given to it in the Service Agency Agreement. 1.2 Interpretation In these Conditions: (a) any reference to face amount shall be deemed to include the Dissolution Amount, any additional amounts (other than relating to Periodic Distribution Amounts) which may be payable under Condition 13 (Taxation), and any other amount in the nature of face amounts payable pursuant to these Conditions; (b) any reference to Periodic Distribution Amounts shall be deemed to include any additional amounts in respect of profit distributions which may be payable under Condition 13 (Taxation) and any other amount in the nature of a profit distribution payable pursuant to these Conditions; (c) references to Certificates being "outstanding" shall be construed in accordance with the Master Trust Deed; (d) any reference to a Transaction Document shall be construed as a reference to that Transaction Document as amended and/or supplemented up to and including the Issue Date; and (e) references to "RMB Certificates" are to Certificates denominated in Renminbi. References herein to "Renminbi", "RMB" and "CNY" are to the lawful currency of the People's Republic of China (the "PRC") that is deliverable offshore. For the purposes of these Conditions, references to the PRC exclude the Hong Kong Special Administrative Region of the PRC ("Hong Kong"), the Macau Special Administrative Region of the PRC ("Macau") and Taiwan. 2. FORM, DENOMINATION AND TITLE 2.1 Form and Denomination The Certificates are issued in registered form in the Specified Denominations, and in the case of Certificates in definitive form, are serially numbered. - 49 -
62. For so long as any of the Certificates is represented by a Global Certificate held on behalf of Euroclear Bank SA /NV ("Euroclear") and/or Clearstream Banking, S.A. ("Clearstream, Luxembourg"), each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular face amount of such Certificates (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the face amount of such Certificates standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error or proven error) shall be treated by the Trustee, the Obligor and the Agents as the holder of such face amount of such Certificates for all purposes other than with respect to payment in respect of such Certificates, for which purpose the registered holder of the relevant Global Certificate shall be treated by the Trustee, the Obligor and any Agent as the holder of such face amount of such Certificates in accordance with and subject to the terms of the relevant Global Certificate and the expressions "Certificateholder" and "holder" in relation to any Certificates and related expressions shall be construed accordingly. Certificates which are represented by a Global Certificate will be transferable only in accordance with the rules and procedures for the time being of Euroclear and Clearstream, Luxembourg, as the case may be. References to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system applicable to the Certificates. 2.2 Register The Registrar will maintain a register (the "Register") of Certificateholders in respect of the Certificates in accordance with the provisions of the Agency Agreement. A certificate of registration (each an "Individual Certificate") will be issued to each Certificateholder in respect of its entire registered holding of Certificates and will be serially numbered with an identifying number which will be recorded also on the Register. 2.3 Title The Trustee, the Obligor and the Agents may (to the fullest extent permitted by applicable laws) deem and treat the person in whose name any outstanding Certificate is for the time being registered (as set out in the Register) as the holder of such Certificate or of a particular face amount of the Certificates for all purposes (whether or not such Certificate or face amount shall be overdue and notwithstanding any notice of ownership thereof or of trust or other interest with regard thereto, and any notice of loss or theft or any writing thereon), and the Trustee, the Obligor and the Agents shall not be affected by any notice to the contrary. All payments made to such registered holder shall be valid and, to the extent of the sums so paid, effective to satisfy and discharge the liability for moneys payable in respect of such Certificate or face amount. 3. TRANSFERS OF TRUST CERTIFICATES AND ISSUE OF CERTIFICATES 3.1 Transfers Subject to Conditions 3.4 (Closed periods), Condition 3.5 (Regulations) and the provisions of the Agency Agreement, a Certificate may be transferred in whole or in an amount equal to the Specified Denomination or any integral multiple thereof by depositing the Individual Certificate issued in respect of that Certificate, with the form of transfer on the back duly completed and signed, at the specified office of the Registrar together with such evidence as the Registrar or (as the case may be) such Transfer Agent may reasonably require to provide the title of the transferor and the individuals who have executed the forms of transfer. Certificates which are represented by a Global Certificate will be transferable only in accordance with the rules and procedures for the time being of the relevant clearing system through which the interest is held. - 50 -
63. 3 .2 Delivery of new Individual Certificates Each new Individual Certificate to be issued upon transfer of Certificates will, within five business days of receipt by the Registrar of the duly completed form of transfer endorsed on the relevant Individual Certificate, be mailed by uninsured mail at the risk of the holder entitled to the Certificate to the address specified in the form of transfer. For the purposes of this Condition, "business day" shall mean a day on which banks are open for business in the city in which the specified office of the Registrar is located. Where some but not all of the Certificates in respect of which an Individual Certificate is issued are to be transferred, a new Individual Certificate in respect of the Certificates not so transferred will, within five business days of receipt by the Registrar of the original Individual Certificate, be mailed by uninsured mail at the risk of the holder of the Certificates not so transferred to the address of such holder appearing on the Register or as specified in the form of transfer. 3.3 Formalities free of charge The registration of any transfer of Certificates will be effected without charge by or on behalf of the Trustee and the Registrar except that the Trustee and the Registrar may require the payment (or the giving of such indemnity as the Trustee and the Registrar may reasonably require) of a sum sufficient to cover any stamp duty, tax or other governmental charges which may be imposed in relation to such transfer. 3.4 Closed periods No Certificateholder may require the transfer of a Certificate to be registered during the period of 15 days ending on (and including) a Periodic Distribution Date, a Dissolution Date or any other date on which any payment of the face amount or payment of any profit in respect of a Certificate falls due. 3.5 Regulations All transfers of Certificates and entries on the Register will be made subject to the detailed regulations concerning the transfer of Certificates scheduled to the Master Trust Deed. A copy of the current regulations will be mailed (free of charge) by the Registrar to any Certificateholder who requests in writing a copy of such regulations. Certificates are transferable (in whole or in part) and the Individual Certificate in respect of the Certificates to be transferred must be delivered for registration to the specified office of the Registrar with the form of transfer, which may be obtained from the Registrar, endorsed and accompanied by such other evidence as the Trustee may require to prove the title of the transferor or his right to transfer the Certificates. The holder of Certificates shall be entitled to receive in accordance with Condition 3.2 (Delivery of new Individual Certificates) only one Individual Certificate in respect of his entire holding of Certificates. In the case of a transfer of a portion of the face amount of an Individual Certificate, a new Individual Certificate in respect of the balance of the Certificates not transferred will be issued to the transferor in accordance with Condition 3.2 (Delivery of new Individual Certificates). 4. STATUS AND LIMITED RECOURSE 4.1 Status Each Certificate will represent an undivided pro rata ownership interest in the relevant Trust Assets (pursuant to the Trust Deed and these Conditions) and will be a limited recourse obligation of the Trustee. Each Certificate ranks pari passu, without any preference or priority, with all other Certificates of the relevant Series issued under the Programme. 4.2 Obligor The payment obligations of the Obligor under the Transaction Documents are direct, unconditional, unsecured and unsubordinated obligations of the Obligor (subject to the provisions of Condition 5 (Negative Pledge)) and rank at least pari passu with the claims of the Obligor's other unsecured - 51 -
64. and unsubordinated creditors , save whose claim may be preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application. 4.3 Limited Recourse The proceeds of the relevant Trust Assets are the sole source of payments on the Certificates of each Series. Save as provided in this Condition 4 (Status and Limited Recourse), the Certificates do not represent an interest in or obligation of any of the Trustee, the Obligor, the Delegate any of the Agents or any of their respective affiliates. Accordingly, other than the Trust Assets, Certificateholders will have no recourse to any assets of the Trustee (including, in particular other assets comprised in other trusts, if any), the Obligor (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party), the Delegate or Agents or any of their respective affiliates in respect of any shortfall in the expected amounts from the Trust Assets to the extent the Trust Assets have been exhausted following which all obligations of the Trustee shall be extinguished. The Obligor is obliged to make certain payments under the Transaction Documents to which it is a party directly to the Trustee (for and on behalf of the Certificateholders), and the Delegate will, as delegate of the Trustee for the Certificateholders, have direct recourse against the Obligor to recover such payments. The net proceeds of the realisation of, or enforcement with respect to, the relevant Trust Assets may not be sufficient to make all payments due in respect of the Certificates. If, following distribution of such proceeds, there remains a shortfall in payments due under the Certificates, subject to Condition 16 (Enforcement and Exercise of Rights), no Certificateholder will have any claim against the Trustee, the Agents, the Delegate, the Obligor (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party) or any of their affiliates or against any of their respective assets (other than the relevant Trust Assets) in respect of such shortfall and any unsatisfied claims of the Certificateholders shall be extinguished. In particular, no Certificateholder will be able to petition for, or join any other person in instituting proceedings for, the reorganisation, liquidation, winding up or receivership of the Trustee, the Agents, the Delegate, the Obligor (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party) or any of their affiliates as a consequence of such shortfall or otherwise. 4.4 Agreement of Certificateholders By purchasing or acquiring the Certificates, each Certificateholder agrees that notwithstanding anything to the contrary contained in these Conditions or in any Transaction Document: (a) no payment of any amount whatsoever shall be made by or on behalf of the Trustee or any of its respective agents on its behalf except to the extent funds are available therefor from the relevant Trust Assets and further acknowledges and agrees that no recourse shall be had for the payment of any amount owing hereunder or under any Transaction Document, whether for the payment of any fee or other amount hereunder or any other obligation or claim arising out of or based upon any Transaction Document, against the Trustee to the extent the relevant Trust Assets have been exhausted following which all obligations of the Trustee shall be extinguished; and (b) it will not institute against, or join with any other person in instituting against the Trustee any bankruptcy, reorganisation, arrangement or liquidation proceedings or other proceedings under any bankruptcy or similar law; and (c) no recourse (whether by institution or enforcement of any legal proceedings or assessment or otherwise) in respect of any breaches of any duty, obligation or undertaking of the Trustee arising under or in connection with these Conditions and any Transaction Document to which it is a party by virtue of any customary law, statute or otherwise shall be had against any shareholder, officer, employee, agent, director or corporate services provider of the Trustee in their capacity as such and any and all personal liability of every such shareholder, officer, employee, agent, director or corporate services provider in their capacity as such for any breaches by the Trustee of any such duty, obligation or - 52 -
65. undertaking is hereby expressly waived and excluded to the extent permitted by law . 5. NEGATIVE PLEDGE Pursuant to the Purchase Undertaking, the Obligor has undertaken that, so long as any Certificate remains outstanding, the Obligor shall not, and will ensure that none of its Subsidiaries will create, or have outstanding, any Security Interest upon the whole or any part of its present or future undertaking, assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness, or any guarantee or indemnity in respect of any Relevant Indebtedness, without: (a) at the same time or prior thereto securing equally and rateably therewith its obligations under the Transaction Documents to which it is a party (in whatever capacity); or (b) providing such other security for those obligations as either: (i) the Delegate (on behalf of the Trustee) shall in its absolute discretion deem not materially less beneficial to the interest of Certificateholders; or (ii) shall be approved by an Extraordinary Resolution of holders of the Certificates. For the purposes of these Conditions: "Indebtedness" means any present or future indebtedness of any person for or in respect of any money borrowed (including Shari'a compliant facilities) or raised including (without limitation) any liability arising under or in connection with any sukuk or other securities or any moneys raised under any transaction having the commercial effect of borrowing or raising money; "Non-recourse Project Financing Indebtedness" means any Indebtedness incurred in connection with any financing of all or part of the costs of the acquisition, construction or development of any project, provided that: (a) any Security Interest given by the Obligor is limited solely to assets of the project; (b) the person providing such financing expressly agrees to limit its recourse to the project financed and the revenues derived from such project as the principal source of repayment for the monies advanced; and (c) there is no other recourse to the Obligor in respect of any default by any person under the financing; "Relevant Indebtedness" means any Indebtedness other than Permitted Indebtedness which is in the form of, or represented or evidenced by, bonds, notes, debentures, loan stock, sukuk certificates or other securities which for the time being are, or are intended to be or capable of being, quoted, listed or dealt in or traded on any stock exchange or over-the-counter or other securities market; "Permitted Indebtedness" Securitisation Indebtedness; means Non-recourse Project Financing Indebtedness and "Securitisation Indebtedness" means any Indebtedness incurred in connection with any securitisation of existing or future asset and/or revenues, provided that: (a) any Security Interest given by the Obligor or any of its Subsidiaries in connection therewith is limited solely to the assets and/or revenues which are the subject of the securitisation; (b) each party participating in such securitisation expressly agrees to limit its recourse to the assets and/or revenues so securitised; and (c) there is no other recourse to the Obligor or any of its Subsidiaries in respect of any default by any person under the securitisation; and "Security Interest" means any mortgage, charge, lien or other security interest securing any obligation of any party. 6. THE TRUST 6.1 Trust Assets Pursuant to the Trust Deed, the Trustee holds the Trust Assets for each Series upon trust absolutely for and on behalf of the Certificateholders of such Series pro rata according to the face amount of Certificates held by each holder in respect of that Series. The term "Trust Assets" in respect of each Series means the following: (a) the cash proceeds of the issue of the Certificates, pending the application thereof in accordance with the terms of the Transaction Documents; (b) the interests, rights, title, benefits and entitlements, present and future, in, to and under the - 53 -
66. Sukuk Portfolio from time to time (excluding any representations given by the Obligor to the Trustee and/or the Delegate under any document constituting the Wakala Portfolio from time to time); 6.2 (c) the interests, rights, title, benefits and entitlements, present and future, in, to and under the Transaction Documents (excluding any representations given by the Obligor to the Trustee and/or the Delegate pursuant to any of the Transaction Documents and the covenant given to the Trustee pursuant to clause 15 of the Master Trust Deed); (d) all moneys standing to the credit of the Transaction Account from time to time; and (e) all proceeds of the foregoing. Application of Proceeds from the Trust Assets Pursuant to the Trust Deed, the Trustee holds the Trust Assets for and on behalf of the holders of the Certificates. On each Periodic Distribution Date, any Dissolution Date or on any earlier date specified for the dissolution of the Trust for each Series, the Principal Paying Agent, notwithstanding any instructions to the contrary from the Trustee, will apply the monies standing to the credit of the Transaction Account in the following order of priority: 7. (a) first, to the extent not previously paid, to the Delegate in respect of all amounts owing to it under the Transaction Documents in its capacity as Delegate; (b) second, to the extent not previously paid, to pay pari passu and rateably: (i) the Trustee in respect of all amounts properly incurred and documented owing to it under the Transaction Documents in its capacity as the issuer and the trustee (other than, for the avoidance of doubt, any amounts owing to it under the Transaction Documents which represent Dissolution Amounts, Periodic Distribution Amounts or any other amounts payable to Certificateholders in respect of the Certificates) and under the Corporate Services Agreement; and (ii) the Agents in respect of all amounts owing to them under the Transaction Documents in their capacity as Agents; (c) third, to the Principal Paying Agent for application in or towards payment pari passu and rateably of all Periodic Distribution Amounts due and unpaid; (d) fourth, only if such payment is made on a Dissolution Date on which Certificates of a Series are to be redeemed in part, to the Principal Paying Agent for application in or towards payment pari passu and rateably of the relevant Dissolution Amount in redemption of the relevant Certificates to be redeemed; (e) fifth, only if such payment is made on a Dissolution Date on which Certificates of a Series are to be redeemed in whole, to the Principal Paying Agent for application in or towards payment pari passu and rateably of the relevant Dissolution Amount; (f) sixth, only if such payment is made on a Dissolution Date on which Certificates of a Series are to be redeemed in whole, to the Service Agent to pay any amounts advanced by way of a Liquidity Facility under the Service Agency Agreement; (g) seventh, only if such payment is made on a Dissolution Date on which Certificates of a Series are to be redeemed in whole, to the Service Agent for application in or towards payment of any outstanding Service Agent Liability Amounts; and (h) eighth, only if such payment is made on a Dissolution Date on which Certificates of a Series are to be redeemed in whole, the excess, if any, to the Obligor in its capacity as Service Agent as an incentive payment under the Service Agency Agreement. COVENANTS The Trustee has covenanted in the Master Trust Deed that, inter alia, for so long as any Certificate - 54 -
67. is outstanding , it shall not (without the prior written consent of the Delegate): (a) incur any indebtedness in respect of borrowed money whatsoever, or give any guarantee in respect of any obligation of any person or issue any shares (or rights, warrants or options in respect of shares or securities convertible into or exchangeable for shares) other than the Certificates issued under the Programme; (b) secure any of its present or future indebtedness for borrowed money by any lien, pledge, charge or other security interest upon any of its present or future assets, properties or revenues (other than those arising by operation of law); (c) sell, lease, transfer, assign, participate, exchange or otherwise dispose of, or pledge, mortgage, hypothecate or otherwise encumber (by security interest, lien (statutory or otherwise), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever or otherwise or permit such to occur or suffer such to exist), any part of (i) its title to the Trust Assets or any interest therein except pursuant to any Transaction Document or (ii) its interests in any of the other Trust Assets except pursuant to any Transaction Document; (d) use the proceeds of the issue of the Certificates for any purpose other than as set out in the applicable Final Terms; (e) amend or agree to any amendment of any Transaction Document to which it is a party, or its memorandum and articles of association, in a manner which is materially prejudicial to the rights of holders of outstanding Certificates (it being accepted that an increase in the aggregate face amount of the Programme will not be materially prejudicial to such rights) without (i) the prior approval of the Certificateholders by way of Extraordinary Resolution and (ii) first notifying the Rating Agencies of the proposed amendments and subsequently providing the Rating Agencies with copies of the relevant executed amended Transaction Documents; (f) act as trustee in respect of any trust other than the Trust corresponding to a Series of Certificates issued from time to time pursuant to the Programme; (g) have any subsidiaries or employees; (h) redeem any of its shares or pay any dividend or make any other distribution to its shareholders; (i) put to its directors or shareholders any resolution for or appoint any liquidator for its winding up or any resolution for the commencement of any other bankruptcy or insolvency proceeding with respect to it; and (j) enter into any contract, transaction, amendment, obligation or liability other than the Transaction Documents to which it is a party or any permitted amendment or supplement thereto or as expressly permitted or required thereunder or engage in any business or activity other than: (i) as provided for or permitted in the Transaction Documents; (ii) the ownership, management and disposal of Trust Assets as provided in the Transaction Documents; and (iii) such other matters which are incidental thereto. 8. FIXED PERIODIC DISTRIBUTION PROVISIONS 8.1 Application This Condition 8 is applicable to the Certificates only if the "Fixed Periodic Distribution Provisions" are specified in the applicable Final Terms as being applicable. - 55 -
68. 8 .2 Periodic Distribution Amount A Periodic Distribution Amount will be payable in respect of the relevant Certificates and be distributable by the Trustee to the Certificateholders in accordance with these Conditions. 8.3 Determination of Periodic Distribution Amount Except as provided in the applicable Final Terms, the Periodic Distribution Amount payable in respect of each Certificate for any Return Accumulation Period shall be the Fixed Amount and, if the Certificates are in more than one Specified Denomination, shall be the Fixed Amount in respect of the relevant Specified Denomination. Payments of Periodic Distribution Amounts on any Periodic Distribution Date may, if so specified in the applicable Final Terms, amount to the Broken Amount. In the case of a Certificate where the Specified Currency is Renminbi and the applicable Final Terms specifies a "Business Day Convention" to be applicable (an "Adjusted Renminbi Fixed Periodic Distribution Certificate"), each Periodic Distribution Date (and, accordingly, the relevant Return Accumulation Period) will be adjusted (if required) in accordance with the relevant Business Day Convention. For this purpose, the provisions relating to the application of a Business Day Convention set out in Condition 9.2 (Periodic Distribution Amount) below shall apply to this Condition 8, mutatis mutandis, save that, for the purposes of the Conditions relating to an Adjusted Renminbi Fixed Periodic Distribution Certificate, the term "Business Day" shall mean a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in Hong Kong. Except in the case of Certificates in definitive form where a Periodic Distribution Amount or Broken Amount is specified in the applicable Final Terms, such Periodic Distribution Amount shall be calculated in respect of any period by applying the Rate to: (a) in the case of Certificates which are represented by a Global Certificate, the aggregate outstanding face amount of the Certificates represented by such Global Certificate; or (b) in the case of Certificates in definitive form, the Calculation Amount, and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such subunit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Certificate in definitive form is a multiple of the Calculation Amount, the Periodic Distribution Amount payable in respect of such Certificate shall be the product of the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding. "Day Count Fraction" means, in respect of the calculation of Periodic Distribution Amount in accordance with this Condition 8.3: (a) if "Actual/Actual (ICMA)" is specified in the applicable Final Terms: (i) in the case of Certificates where the number of days in the relevant period from (and including) the most recent Periodic Distribution Date (or, in the case of RMB Certificates if Periodic Distribution Date Adjustment is specified as being applicable in the applicable Final Terms, the relevant payment date or the next Periodic Distribution Date, as the case may be) (or, if none, the Return Accumulation Commencement Date) to (but excluding) the relevant payment date (the "Accrual Period") is equal to or shorter than the Determination Period during which the Accrual Period ends, the number of days in such Accrual Period divided by the product of: (A) the number of days in such Determination Period; and (B) the number of Determination Dates (as specified in the applicable Final Terms) that would occur in one calendar year; or (ii) in the case of Certificates where the Accrual Period is longer than the - 56 -
69. Determination Period during which the Accrual Period ends , the sum of: (b) (A) the number of days in such Accrual Period falling in the Determination Period in which the Accrual Period begins divided by the product of: (1) the number of days in such Determination Period; and (2) the number of Determination Dates that would occur in one calendar year; and (B) the number of days in such Accrual Period falling in the next Determination Period divided by the product of: (1) the number of days in such Determination Period; and (2) the number of Determination Dates that would occur in one calendar year; and if "30/360" is specified in the applicable Final Terms, the number of days in the period from (and including) the most recent Periodic Distribution Date (or, if none, the Return Accumulation Commencement Date) to (but excluding) the relevant payment date (such number of days being calculated on the basis of a year of 360 days with 12 30-day months) divided by 360. In these Conditions, unless specified otherwise: "Determination Period" means each period from (and including) a Periodic Distribution Determination Date to (but excluding) the next Periodic Distribution Determination Date (including, where either the Return Accumulation Commencement Date or the final Periodic Distribution Date is not a Periodic Distribution Determination Date, the period commencing on the first Periodic Distribution Determination Date prior to, and ending on the first Determination Date falling after, such date); and "sub-unit" means, with respect to any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, with respect to euro, one cent. 8.4 Payment in Arrear Subject to Condition 8.5 (Cessation of Profit Entitlement), Condition 12.2 (Early Dissolution for Tax Reasons), Condition 12.3 (Dissolution at the Option of the Trustee), Condition 12.4 (Redemption at the Option of the Certificateholders), and Condition 15 (Dissolution Events) below, and unless otherwise specified in the applicable Final Terms, each Periodic Distribution Amount will be paid in respect of the relevant Certificates in arrear on each Periodic Distribution Date. 8.5 Cessation of Profit Entitlement No further amounts will be payable on any Certificate from and including: (a) the relevant Dissolution Date, unless default is made in the payment of the Dissolution Amount in which case Periodic Distribution Amounts will continue to accrue in respect of the Certificates in the manner provided in this Condition 8 to the earlier of: (i) the Relevant Date; or (ii) the date on which the Dissolution Amount is paid in full. 9. FLOATING PERIODIC DISTRIBUTION PROVISIONS 9.1 Application This Condition 9 is applicable to the Certificates only if the "Floating Periodic Distribution Provisions" are specified in the applicable Final Terms as being applicable. 9.2 Periodic Distribution Amount (a) A Periodic Distribution Amount representing a defined share of the profit in respect of the Portfolio for the Certificates will be payable in respect of the Certificates and be distributable by the Trustee to the Certificateholders in accordance with these Conditions. Periodic Distribution Amounts will be payable in arrear on either: (i) the Specified Periodic Distribution Date(s) in each year specified in the applicable Final Terms; or - 57 -
70. (ii) if no Specified Periodic Distribution Date(s) is/are specified in the applicable Final Terms, each date (each such date, together with each Specified Periodic Distribution Date, a "Periodic Distribution Date") which falls the number of months or other period specified as the Specified Period in the applicable Final Terms after the preceding Periodic Distribution Date or, in the case of the first Periodic Distribution Date, after the Return Accumulation Commencement Date. Such Periodic Distribution Amounts will be payable in respect of each Return Accumulation Period. (b) If a "Business Day Convention" is specified in the applicable Final Terms and (x) if there is no numerically corresponding day in the calendar month in which a Periodic Distribution Date should occur or (y) if any Periodic Distribution Date would otherwise fall on a day which is not a Business Day, then, if the Business Day Convention specified is: (i) in any case where Specified Periods are specified in accordance with Condition 9.2(a)(ii) above, the "Floating Rate Convention", such Periodic Distribution Date: (A) in the case of (x) above, shall be the last day that is a Business Day in the relevant month and the provisions of (ii) below shall apply mutatis mutandis; or (B) in the case of (y) above, shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event: (1) such Periodic Distribution Date shall be brought forward to the immediately preceding Business Day; and (2) each subsequent Periodic Distribution Date shall be the last Business Day in the month which falls the Specified Period after the preceding applicable Periodic Distribution Date occurred; or (ii) the "Following Business Day Convention", such Periodic Distribution Date shall be postponed to the next day which is a Business Day; or (iii) the "Modified Following Business Day Convention", such Periodic Distribution Date shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event such Periodic Distribution Date shall be brought forward to the immediately preceding Business Day; or (iv) the "Preceding Business Day Convention", such Periodic Distribution Date shall be brought forward to the immediately preceding Business Day. In these Conditions, unless specified otherwise, "Business Day" means a day which is both: 9.3 (a) a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency and any Additional Business Centre specified in the applicable Final Terms; and (b) either: (i) in relation to any sum payable in a Specified Currency other than euro or Renminbi, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency (if other than London and any Additional Business Centre and which if the Specified Currency is Australian dollars or New Zealand dollars shall be Melbourne and Wellington, respectively); (ii) in relation to any sum payable in euro, a day on which the TARGET2 System is open; or (iii) in relation to any sum payable in Renminbi, a day (other than a Saturday, Sunday or public holiday) on which commercial banks in Hong Kong are generally open for business and settlement of Renminbi payments in Hong Kong. Screen Rate Determination If "Screen Rate Determination" is specified in the applicable Final Terms as the manner in which the Rate is to be determined, the Rate applicable to the Certificates for each Return Accumulation - 58 -
71. Period will be determined by the Calculation Agent on the following basis : (a) if the Reference Rate specified in the applicable Final Terms is a composite quotation or customarily supplied by one entity, the Calculation Agent will determine the Reference Rate which appears on the Relevant Screen Page as of the Relevant Time on the relevant Periodic Distribution Determination Date; (b) in any other case, the Calculation Agent will determine the arithmetic mean of the Reference Rates which appear on the Relevant Screen Page as of the Relevant Time on the relevant Periodic Distribution Determination Date; (c) if, in the case of (a) above, such rate does not appear on that page or, in the case of (b) above, fewer than two such rates appear on that page or if, in either case, the Relevant Screen Page is unavailable: (d) (i) the Obligor will request each of the Reference Banks to provide a quotation of the Reference Rate at approximately the Relevant Time on the Periodic Distribution Determination Date to prime banks in the London, Eurozone or Emirates interbank market, as the case may be, in an amount that is representative for a single transaction in that market at that time to the Calculation Agent; and (ii) the Calculation Agent will determine the arithmetic mean of such quotations; and if fewer than two such quotations are provided as requested, the Calculation Agent will determine the arithmetic mean of the rates quoted by major banks in the principal financial centre of the Specified Currency, selected by the Obligor and notified to the Calculation Agent, at approximately 11.00 a.m. (local time in the principal financial centre of the Specified Currency) on the first day of the relevant Return Accumulation Period for loans in the Specified Currency to leading European banks for a period equal to the relevant Return Accumulation Period and in an amount that is representative for a single transaction in that market at that time, and the Rate for such Return Accumulation Period shall be the sum of the Margin and the rate or (as the case may be) the arithmetic mean so determined; provided, however, that if the Calculation Agent is unable to determine a rate or (as the case may be) an arithmetic mean in accordance with the above provisions in relation to any Return Accumulation Period and provided that such failure is not due to the occurrence of a Benchmark Event, the Rate applicable to the Certificates during such Return Accumulation Period will be the sum of the Margin and the rate or (as the case may be) the arithmetic mean last determined in relation to the Certificates in respect of a preceding Return Accumulation Period. 9.4 ISDA Determination If "ISDA Determination" is specified in the applicable Final Terms as the manner in which the Rate is to be determined, the Rate applicable to the Certificates for each Return Accumulation Period will be the sum of the Margin and the relevant ISDA Rate where "ISDA Rate" in relation to any Return Accumulation Period means a rate equal to the Floating Rate (as defined in the ISDA Definitions) that would be determined by the Calculation Agent under a Swap Transaction (as defined in the ISDA Definitions) if the Calculation Agent were acting as Calculation Agent for that Swap Transaction under the terms of an agreement incorporating the ISDA Definitions and under which: (a) the Floating Rate Option (as defined in the ISDA Definitions) is as specified in the applicable Final Terms; (b) the Designated Maturity (as defined in the ISDA Definitions) is a period specified in the applicable Final Terms; and (c) the relevant Reset Date (as defined in the ISDA Definitions) is either: (i) if the relevant Floating Rate Option is based on: (A) LIBOR; or (B) EURIBOR for a currency, the first day of that Return Accumulation Period; or (ii) in any other case, as specified in the applicable Final Terms. - 59 -
72. 9 .5 Cessation of Profit Entitlement No further amounts will be payable on any Certificate from and including: (a) the relevant Dissolution Date, unless default is made in the payment of the Dissolution Amount in which case Periodic Distribution Amounts will continue to accrue in respect of the Certificates in the manner provided in this Condition 9 to the earlier of: (i) the Relevant Date; or (ii) the date on which the Dissolution Amount is paid in full. 9.6 Calculation of Periodic Distribution Amount The Calculation Agent will, as soon as practicable after the time at which the Rate is to be determined in relation to each Return Accumulation Period, calculate the Periodic Distribution Amount payable in respect of each Certificate for such Return Accumulation Period. The Periodic Distribution Amount will be calculated by applying the Rate applicable to the relevant Return Accumulation Period to: (a) in the case of Certificates which are represented by a Global Certificate, the aggregate outstanding face amount of the Certificates represented by such Global Certificate; or (b) in the case of Certificates in definitive form, the Calculation Amount, and, in each case, multiplying the product by the relevant Day Count Fraction and rounding the resultant figure to the nearest sub-unit of the Specified Currency (half a subunit being rounded upwards) or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Certificate in definitive form is a multiple of the Calculation Amount, the Periodic Distribution Amount payable in respect of such Certificate shall be the product of the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding. "Day Count Fraction" means, in respect of the calculation of a Periodic Distribution Amount in accordance with this Condition 9: (a) if "Actual/365" or "Actual/Actual" is specified in the applicable Final Terms, the actual number of days in the Return Accumulation Period divided by 365 (or, if any portion of that Return Accumulation Period falls in a leap year, the sum of: (i) the actual number of days in that portion of the Return Accumulation Period falling in a leap year divided by 366; and (ii) the actual number of days in that portion of the Return Accumulation Period falling in a non-leap year divided by 365); (b) if "Actual/365 (Fixed)" is specified in the applicable Final Terms, the actual number of days in the Return Accumulation Period divided by 365; (c) if "Actual/365 (Sterling)" is specified in the applicable Final Terms, the actual number of days in the Return Accumulation Period divided by 365 or, in the case of a Periodic Distribution Date falling in a leap year, 366; (d) if "Actual/360" is specified in the applicable Final Terms, the actual number of days in the Return Accumulation Period divided by 360; (e) if "30/360" "360/360" or "Bond Basis" is specified in the applicable Final Terms, the number of days in the Return Accumulation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months (unless: (i) the last day of the Return Accumulation Period is the 31 st day of a month but the first day of the Return Accumulation Period is a day other than the 30 th or 31st day of a month, in which case the month that includes that last day shall not be considered to be shortened to a 30day month; or (ii) the last day of the Return Accumulation Period is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month)); and (f) if "30E/360" or "Eurobond Basis" is specified in the applicable Final Terms, the number of days in the Return Accumulation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months, without regard to the - 60 -
73. date of the first day or last day of the Return Accumulation Period unless , in the case of the final Return Accumulation Period, the Maturity Date is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month). 9.7 Benchmark Replacement Notwithstanding the provisions above in this Condition 9, if the Trustee or the Obligor determines that a Benchmark Event has occurred in relation to a Reference Rate when any Rate (or the relevant component part thereof) remains to be determined by reference to such Reference Rate, then the following provisions shall apply: (a) the Trustee and the Obligor shall use reasonable endeavours to appoint an Independent Adviser, as soon as reasonably practicable, to determine a Successor Rate or, alternatively, if the Independent Adviser determines that there is no Successor Rate, an Alternative Reference Rate and/or, in either case, an Adjustment Spread no later than five Business Days prior to the Periodic Distribution Determination Date relating to the next succeeding Return Accumulation Period (the "Periodic Distribution Determination Cut-off Date") for the purposes of determining the Rate applicable to the Certificates for all future Return Accumulation Periods (subject to the operation of this Condition 9.7); (b) if: (A) the Trustee and/or the Obligor are unable to appoint an Independent Adviser, or (B) the Independent Adviser appointed by it fails to determine a Successor Rate or an Alternative Reference Rate, and/or (in either case) the applicable Adjustment Spread, prior to the Periodic Distribution Determination Cut-off Date in accordance with subparagraph (a) above, then the Obligor (acting in good faith and in a commercially reasonable manner) may determine a Successor Rate or, if the Obligor determines that there is no Successor Rate, an Alternative Reference Rate and/or (in either case) an Adjustment Spread for the purposes of determining the Rate applicable to the Certificates for all future Return Accumulation Periods (subject to the operation of this Condition 9.7); provided, however, that if this subparagraph (b) applies and the Obligor has failed to determine a Successor Rate or an Alternative Reference Rate and/or (in either case) the applicable Adjustment Spread, prior to the Periodic Distribution Determination Date relating to the next succeeding Return Accumulation Period in accordance with this subparagraph (b), the Rate applicable to such Return Accumulation Period shall be equal to the Rate last determined in relation to the Certificates in respect of the immediately preceding Return Accumulation Period (though substituting, where a different Margin is to be applied to the relevant Return Accumulation Period from that which applied to the last preceding Return Accumulation Period for which the Rate was determined, the Margin relating to the relevant Return Accumulation Period, in place of the Margin relating to that last preceding Return Accumulation Period). For the avoidance of doubt, if this subparagraph (b) applies and the Obligor has failed to determine a Successor Rate or an Alternative Reference Rate and/or (in either case) the applicable Adjustment Spread, prior to the Periodic Distribution Determination Date relating to the next succeeding Return Accumulation Period in accordance with this subparagraph (b), this subparagraph (b) shall apply to the relevant next succeeding Return Accumulation Period only and any subsequent Return Accumulation Periods are subject to the operation of this Condition 9.7 in its entirety; (c) if a Successor Rate or an Alternative Reference Rate is determined in accordance with the preceding provisions, such Successor Rate or Alternative Reference Rate (as applicable) shall be the Reference Rate for all future Return Accumulation Periods (subject to the operation of this Condition 9.7 in its entirety including in the event of a further Benchmark Event affecting the Successor Rate or the Alternative Reference Rate); (d) the Adjustment Spread (or the formula for determining the Adjustment Spread) shall be applied to the Successor Rate or the Alternative Reference Rate (as the case may be); (e) if the Independent Adviser or the Obligor (as the case may be) determines a Successor Rate or an Alternative Reference Rate and, in each case, the applicable Adjustment Spread, - 61 -
74. in accordance with the above provisions , the Independent Adviser (in consultation with the Trustee and the Obligor) or the Obligor (acting in good faith and in a commercially reasonable manner) may also specify changes to these Conditions, including to the Day Count Fraction, Relevant Screen Page, Business Day Convention, Business Day, Periodic Distribution Determination Date, Periodic Distribution Dates and/or the definition of Reference Rate or Adjustment Spread applicable to the Certificates (and in each case, related provisions and definitions), and the method for determining the fallback rate in relation to the Certificates, in order to ensure the proper operation of such Successor Rate or Alternative Reference Rate and/or (in either case) the applicable Adjustment Spread (as applicable) (such amendments, the "Benchmark Amendments"), and the Trustee and the Obligor shall, subject to giving notice thereof in accordance with Condition 9.7(g), without any requirement for the consent or approval of the Certificateholders, vary these Conditions and/or the Agency Agreement to give effect to such Benchmark Amendments with effect from the date specified in such notice and such Benchmark Amendments shall apply to the Certificates for all future Return Accumulation Periods (subject to the operation of this Condition 9.7 in its entirety) provided that no such Benchmark Amendments shall impose more onerous obligations on the Agents or the Delegate or expose any of them to any additional duties or liabilities, or decrease its rights and protections, unless the relevant Agent or the Delegate consents; (f) any Independent Adviser appointed pursuant to this Condition 9.7 shall act in good faith and subject as aforesaid (in the absence of gross negligence, fraud or wilful misconduct) shall have no liability whatsoever to the Trustee, the Obligor, the Principal Paying Agent or Certificateholders for any determination made by it or for any advice given to the Trustee and/or the Obligor in connection with any determination made by the Obligor pursuant to this Condition 9.7. No Certificateholder consent shall be required in connection with effecting the Successor Rate or the Alternative Reference Rate (as applicable), any Adjustment Spread or such other changes pursuant to subparagraph (e), including for the execution of any documents, amendments or other steps by the Trustee, the Obligor, the Delegate or the Principal Paying Agent (or such other person specified in the relevant Final Terms as the party responsible for calculating the Rate and Periodic Distribution Amounts) (if required); (g) the Trustee and the Obligor shall, following the determination of any Successor Rate, Alternative Reference Rate or Adjustment Spread, give notice of the occurrence of the Benchmark Event, the determination of the Successor Rate, Alternative Reference Rate or Adjustment Spread and of any Benchmark Amendments pursuant to subparagraph (e) above to the Principal Paying Agent (or such other person specified in the relevant Final Terms as the party responsible for calculating the Rate and Periodic Distribution Amounts) and the Delegate at least 5 Business Days prior to the relevant Periodic Distribution Determination Date (and the Principal Paying Agent and the Delegate shall be entitled to rely upon such notice without further investigation). The Trustee and the Obligor shall give notice to the Certificateholders in accordance with Condition 18 (Notices) promptly thereafter; and (h) notwithstanding any other provision of this Condition 9.7 if in the Principal Paying Agent's opinion (or the opinion of such other person specified in the relevant Final Terms as the party responsible for calculating the Rate and Periodic Distribution Amount) there is any uncertainty between two or more alternative courses of action in making any determination or calculation pursuant to this Condition 9.7, the Principal Paying Agent (or such other person specified in the relevant Final Terms as the party responsible for calculating the Rate and Periodic Distribution Amounts) shall promptly notify the Obligor thereof and the Obligor (acting in good faith and in a commercially reasonable manner) shall direct such party in writing as to which alternative course of action to adopt. If the Principal Paying Agent (or such other person specified in the relevant Final Terms as the party responsible for calculating the Rate and Periodic Distribution Amounts) is not promptly provided with such direction, or is otherwise unable to make such calculation or determination for any reason, it shall notify the Obligor thereof and (other than due to its own wilful default, gross negligence or bad faith) such party shall be under no obligation to make such calculation or determination and shall not incur any liability for not doing so. - 62 -
75. Neither the Delegate nor any Agent is responsible for making any determination that any Benchmark Event has occurred or is likely to occur and is not obliged to monitor whether any such event has occurred or is likely to occur . For the purposes of this Condition 9.7: "Adjustment Spread" means either: (i) a spread (which may be positive, negative or zero); or (ii) a formula or methodology for calculating a spread, in each case to be applied to the Successor Rate or the Alternative Reference Rate (as applicable) and is the spread, formula or methodology which: (a) in the case of a Successor Rate, is formally recommended, or formally provided as an option for parties to adopt, in relation to the replacement of the relevant Reference Rate with the Successor Rate by any Relevant Nominating Body; or (b) in the case of a Successor Rate for which no such recommendation has been made or in the case of an Alternative Reference Rate, the Independent Adviser (in consultation with the Obligor) or the Obligor (acting in good faith and in a commercially reasonable manner) (as applicable) determines is customarily applied to the Successor Rate or Alternative Reference Rate in international debt capital markets transactions to produce an industryaccepted replacement rate for the relevant Successor Rate or Alternative Reference Rate (as applicable); or (c) in the case the Independent Adviser (in consultation with the Obligor) or the Obligor (acting in good faith and in a commercially reasonable manner) determines that no such spread is customarily applied, the Independent Adviser (in consultation with the Obligor) or the Obligor in its discretion (acting in good faith and in a commercially reasonable manner) (as applicable), determines to be appropriate to reduce or eliminate, to the extent reasonably practicable in the circumstances, the economic prejudice or benefit (as the case may be) to Certificateholders as a result of the replacement of the Reference Rate with the Successor Rate or the Alternative Rate (as the case may be); "Alternative Reference Rate" means an alternative benchmark or screen rate that the Independent Adviser (in consultation with the Obligor) or the Obligor (as applicable) determines (acting in good faith and in a commercially reasonable manner) is customarily applied in international debt capital markets transactions for the purposes of determining floating Rates (or the relevant component thereof) in respect of Certificates denominated in the Specified Currency and of a comparable duration to the relevant Return Accumulation Period or, if the Independent Adviser (in consultation with the Obligor) or the Obligor determines (acting in good faith and in a commercially reasonable manner) that there is no such rate, such other rate as the Independent Adviser (in consultation with the Obligor) or the Obligor (as applicable) determines (acting in good faith and in a commercially reasonable manner) in its discretion is most comparable to the relevant Reference Rate; "Benchmark Event" means: (a) the relevant Reference Rate has ceased to be published on the Relevant Screen Page as a result of such benchmark ceasing to be calculated or administered or ceasing to be published for at least five Business Days; or (b) a public statement by the administrator of the relevant Reference Rate that it has ceased publishing such Reference Rate permanently or indefinitely or that it will cease to do so by a specified future date (the "Specified Future Date") (in circumstances where no successor administrator has been or will be appointed that will continue publication of such Reference Rate); or (c) a public statement by the supervisor of the administrator of the relevant Reference Rate that such Reference Rate has been or will, by a specified future date (the "Specified Future Date") be permanently or indefinitely discontinued; or (d) a public statement by the supervisor of the administrator of the relevant Reference Rate that means that such Reference Rate will, by a specified future date (the "Specified Future Date"), be prohibited from being used or that its use will be subject to restrictions or adverse consequences, either generally or in respect of the Certificates; or - 63 -
76. (e) a public statement by the supervisor of the administrator of the relevant Reference Rate that, in the view of such supervisor such Reference Rate is or will, by a specified future date (the "Specified Future Date"), be no longer representative of an underlying market; or (f) it has or will, by a specified date within the following six months, become unlawful for the Principal Paying Agent (or such other person specified in the relevant Final Terms as the party responsible for calculating the Rate and Periodic Distribution Amounts) or the Obligor to calculate any payments due to be made to any Certificateholder using the relevant Reference Rate (as applicable) (including, without limitation, under Regulation (EU) 2016/1011 (the Benchmarks Regulation)). Notwithstanding the sub-paragraphs above, where the relevant Benchmark Event is a public statement within sub-paragraphs (b), (c), (d) or (e) above and the relevant Specified Future Date in the public statement is more than six months after the date of that public statement, the Benchmark Event shall not be deemed to occur until the date falling six months prior to such Specified Future Date; "Financial Stability Board" means the organisation established by the Group of Twenty (G20) in April 2009; "Independent Adviser" means an independent financial institution of international repute or an independent financial adviser with relevant expertise, in each case appointed by the Obligor at its own expense under Condition 9.7; "Relevant Nominating Body" means, in respect of a Reference Rate: (a) the central bank, reserve bank, monetary authority or any similar institution for the currency to which the reference rate relates, or any central bank or other supervisory authority which is responsible for supervising the administrator of the reference rate; or (b) any working group or committee sponsored by, chaired or co-chaired by or constituted at the request of: (i) the central bank, reserve bank, monetary authority or any similar institution for the currency to which the reference rate relates; (ii) any central bank or other supervisory authority which is responsible for supervising the administrator of the reference rate; (iii) a group of the aforementioned central banks or other supervisory authorities; (iv) the International Swaps and Derivatives Association, Inc. or any part thereof; or (v) the Financial Stability Board or any part thereof; and "Successor Rate" means the reference rate (and related alternative screen page or source, if available) that is formally recommended by any Relevant Nominating Body as a successor to or replacement of the relevant Reference Rate. 9.8 Linear Interpolation If "Linear Interpolation" is specified as applicable in respect of a Return Accumulation Period in the applicable Final Terms, the Rate for such Return Accumulation Period shall be calculated by the Principal Paying Agent by straight line linear interpolation by reference to two rates based on the relevant Reference Rate (where Screen Rate Determination is specified as applicable in the applicable Final Terms) or the relevant Floating Rate Option (where ISDA Determination is specified as applicable in the applicable Final Terms), one of which shall be determined as if the Designated Maturity were the period of time for which rates are available next shorter than the length of the relevant Return Accumulation Period and the other of which shall be determined as if the Designated Maturity were the period of time for which rates are available next longer than the length of the relevant Return Accumulation Period provided however that if there is no rate - 64 -
77. available for a period of time next shorter or , as the case may be, next longer, then the Principal Paying Agent shall determine such rate at such time and by reference to such sources as it determines appropriate. 9.9 Calculation of Other Amounts If the applicable Final Terms specifies that any other amount is to be calculated by the Calculation Agent, the Calculation Agent will, as soon as practicable after the time or times at which any such amount is to be determined, calculate the relevant amount. The relevant amount will be calculated by the Calculation Agent in the manner specified in the applicable Final Terms. 9.10 Publication The Calculation Agent will cause each Rate and Periodic Distribution Amount determined by it, together with the relevant Periodic Distribution Date, and any other amount(s) required to be determined by it together with any relevant payment date(s) to be notified to the Paying Agents and each listing authority, stock exchange and/or quotation system (if any) by which the Certificates have then been admitted to listing, trading and/or quotation as soon as practicable after such determination but (in the case of each Rate, Periodic Distribution Amount and Periodic Distribution Date) in any event not later than the first day of the relevant Return Accumulation Period. Notice thereof shall also promptly be given to the Certificateholders. The Calculation Agent will be entitled to recalculate any Periodic Distribution Amount (on the basis of the foregoing provisions) without notice in the event of an extension or shortening of the relevant Return Accumulation Period. 9.11 Notifications, etc. to be final All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 9, whether by the Principal Paying Agent or, if applicable, the Calculation Agent will (in the absence of wilful default, bad faith or manifest or proven error) be binding on the Trustee, the Delegate, the Principal Paying Agent and all Certificateholders and (in the absence as referred to above) no liability to the Trustee, the Delegate, the Obligor the Principal Paying Agent or the Certificateholders shall attach to the Calculation Agent or the Principal Paying Agent (as applicable) in connection with the exercise or non-exercise by it of its powers, duties and discretions under this Condition. 10. PAYMENT 10.1 Payments in respect of Certificates Subject to Condition 8 (Fixed Periodic Distribution Provisions) and Condition 9 (Floating Periodic Distribution Provisions), payment of the relevant Dissolution Amounts and each Periodic Distribution Amount will be made by the relevant Paying Agent in the Specified Currency, by wire transfer in same day funds to the registered account of each Certificateholder. Payments of the relevant Dissolution Amount will only be made against surrender of the relevant Individual Certificate at the specified office of the Registrar or the Principal Paying Agent. Payments of the relevant Dissolution Amount and each Periodic Distribution Amount in respect of the relevant Global Certificate will be paid to the holder shown on the Register at the close of business on the relevant Record Date. For the purposes of this Condition, a Certificateholder's "registered account" means the account denominated in the Specified Currency maintained by or on behalf of such Certificateholder with a bank that processes payments in the Specified Currency, details of which appear on the Register at the close of business on the relevant Record Date. Payments of any Optional Redemption Amounts will be made in accordance with Condition 12.4 (Redemption at the Option of the Certificateholders). 10.2 Payments subject to applicable laws All payments will be made subject in all cases to: (a) any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions described in Condition - 65 -
78. 13 (Taxation); and (b) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the "Code") or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, official interpretations thereof, or (without prejudice to the provisions of Condition 13 (Taxation)) any law implementing an intergovernmental approach thereto. No commission or expenses shall be charged to the Certificateholders in respect of such payments. 10.3 Payment day Where payment is to be made by transfer to a registered account, payment instructions (for value the due date or, if that is not a Payment Business Day, for value the first following day which is a Payment Business Day) will be initiated or, in the case of a payment of the relevant Dissolution Amount, if later, on the Payment Business Day on which the relevant Individual Certificate is surrendered at the specified office of the Registrar or the Principal Paying Agent. Unless otherwise specified in the applicable Final Terms, Certificateholders will not be entitled to any additional Periodic Distribution Amount, Dissolution Amount or any other payment for any delay after the due date in receiving the amount due if the due date is not a Payment Business Day, if the Certificateholder is late in surrendering its Individual Certificate (if required to do so). If the amount of any Dissolution Amount, Optional Redemption Amount or Periodic Distribution Amount is not paid in full when due, the Registrar will annotate the Register with a record of the amount of such Dissolution Amount, Optional Redemption Amount or Periodic Distribution Amount actually paid. 10.4 RMB account All payments in respect of any Certificate denominated in RMB will be made solely by credit to a registered RMB account maintained by or on behalf of the payee at a bank in Hong Kong in accordance with applicable laws, rules, regulations and guidelines issued from time to time (including all applicable laws and regulations with respect to the settlement of RMB in Hong Kong). 10.5 RMB Currency Event (a) If the Specified Currency of the Certificates is RMB and an RMB Currency Event, as determined by the Obligor or the Trustee acting in good faith, exists on a date for payment of any Periodic Distribution Amount, Dissolution Amount or Optional Redemption Amount (in whole or in part) in respect of any Certificates, the Obligor's obligation under the relevant Transaction Document, and the Trustee's corresponding obligation under the terms of the Certificates, to make a payment in RMB may be replaced by an obligation to pay such amount (in whole or in part) in the Relevant Currency and converted using the Spot Rate for the relevant Determination Date as promptly notified to the Trustee and Paying Agents. (b) Upon the occurrence of an RMB Currency Event, the Trustee shall give notice as soon as practicable to the Certificateholders in accordance with Condition 18 (Notices) stating the occurrence of the RMB Currency Event, giving details thereof and the action proposed to be taken in relation thereto. (c) In such event, any payment of U.S. dollars will be made by transfer to a U.S. dollar denominated account maintained by the payee with, or by a U.S. dollar denominated cheque drawn on, a bank in New York City; and "Payment Day" shall mean any day which (subject to Condition 14 (Prescription)) is a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in: (i) in the case of Certificates in definitive form only, the relevant place of presentation; and (ii) London and New York City. For the purpose of this Condition 10: - 66 -
79. "Determination Business Day" means a day (other than a Saturday or Sunday) on which commercial banks are open for general business (including dealings in foreign exchange) in Hong Kong, London and New York City; "Determination Date" means the day which is two Determination Business Days before the due date of the relevant payment under the Certificates, other than where the Obligor or Trustee properly determines that a RMB Currency Event has occurred at any time during the period from and including 10:01 a.m. (Hong Kong time) on the second Determination Business Day preceding the original due date to and including 11:59 p.m. (Hong Kong time) on the original due date, in which case the "Determination Date" will be the Determination Business Day immediately following the date on which the determination of the occurrence of a RMB Currency Event has been made; "Governmental Authority" means any de facto or de jure government (or any agency or instrumentality thereof), court, tribunal, administrative or other governmental authority or any other entity (private or public) charged with the regulation of the financial markets (including the central bank) of Hong Kong; "Relevant Currency" means United States dollars; "RMB" or "Renminbi" means the lawful currency of the People's Republic of China; "RMB Currency Events" means any one of RMB Illiquidity, RMB Non-Transferability and RMB Inconvertibility; "RMB Illiquidity" means the general RMB exchange market in Hong Kong becomes illiquid as a result of which the Obligor cannot obtain sufficient RMB in order to satisfy its obligation to pay the relevant amount under the relevant Transaction Document to fund the Periodic Distribution Amount, Dissolution Amount or Optional Redemption Amount (in whole or in part) in respect of any Certificates, as determined by the Obligor acting in good faith and in a commercially reasonable manner following consultation with two independent foreign exchange dealers of international repute active in the RMB exchange market in Hong Kong; "RMB Inconvertibility" means the occurrence of any event that makes it impossible for the Obligor or Trustee to convert any amount due in respect of the Certificates into RMB on any payment date in the general RMB exchange market in Hong Kong, other than where such impossibility is due solely to the failure of the Obligor or the Trustee (as applicable) to comply with any law, rule or regulation enacted by any Governmental Authority (unless such law, rule or regulation is enacted after the Issue Date of the first Tranche of the relevant Series and it is impossible for the Trustee, due to an event beyond its control, to comply with such law, rule or regulation); "RMB Non-Transferability" means the occurrence of any event that makes it impossible for the Obligor or the Trustee (as applicable) to deliver RMB between accounts inside Hong Kong or from an account inside Hong Kong to an account outside Hong Kong (including where the RMB clearing and settlement system for participating banks in Hong Kong is disrupted or suspended), other than where such impossibility is due solely to the failure of the Obligor or the Trustee (as applicable) to comply with any law, rule or regulation enacted by any Governmental Authority (unless such law, rule or regulation is enacted after the Issue Date of the first Series and it is impossible for the Obligor or the Trustee (as applicable), due to an event beyond its control, to comply with such law, rule or regulation); and "Spot Rate" means the spot CNY/U.S.$ exchange rate for the purchase of U.S. dollars with Renminbi in the over-the-counter Renminbi exchange market in Hong Kong for settlement in two Determination Business Days, as determined by the Calculation Agent at or around 11.00 a.m. (Hong Kong time) on the Determination Date, on a deliverable basis by reference to Reuters Screen Page TRADCNY3, or if no such rate is available, on a non-deliverable basis by reference to Reuters Screen Page TRADNDF. If neither rate is available, the Calculation Agent shall determine the Spot Rate at or around 11:00 a.m. (Hong Kong time) on the Determination Date as the most recently available CNY/U.S. dollar official fixing rate for settlement in two Determination Business Days reported by the State Administration of Foreign Exchange of the PRC, which is reported on the - 67 -
80. Reuters Screen Page CNY =SAEC. Reference to a page on the Reuters Screen means the display page so designated on the Reuter Monitor Money Rates Service (or any successor service) or such other page as may replace that page for the purpose of displaying a comparable currency exchange rate. All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 10 by the Calculation Agent, will (in the absence of wilful default, bad faith or manifest error) be binding on the Obligor, the Trustee, the Agents and all relevant Certificateholders. 11. AGENTS 11.1 Agents of Trustee In acting under the Agency Agreement and in connection with the Certificates, the Agents act solely as agents of the Trustee and (to the extent provided therein) the Delegate and do not assume any obligations towards or relationship of agency or trust for or with any of the Certificateholders. 11.2 Specified Offices The names of the initial Agents and their initial specified offices are set out below. If any additional Paying Agents are appointed in connection with any Series, the names of such Paying Agents will be specified in Part B of the applicable Final Terms. The Trustee reserves the right at any time to vary or terminate the appointment of any Agent and to appoint additional or other Agents provided, however, that: (a) there will at all times be a Principal Paying Agent; (b) there will at all times be a Registrar; (c) so long as any Certificates are admitted to listing, trading and/or quotation on any listing authority, stock exchange and/or quotation system, there will at all times be a Paying Agent and a Transfer Agent having its specified office in such place (if any) as may be required by the rules of such listing authority, stock exchange and/or quotation system; (d) there will at all times be a Paying Agent having its specified office in Europe; and (e) there will at all times be a Calculation Agent. Notice of any variation, termination or appointment and of any changes in specified offices will be given to the Certificateholders promptly by the Trustee in accordance with Condition 18 (Notices). 12. CAPITAL DISTRIBUTIONS OF TRUST 12.1 Scheduled Dissolution Unless the Certificates are previously redeemed or purchased and cancelled, the Trustee will redeem the Certificates on the Maturity Date at the relevant Final Dissolution Amount together with any Periodic Distribution Amounts payable thereunder. Upon payment in full of such amounts and the termination of the Trust, the Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. 12.2 Early Dissolution for Tax Reasons The Trust may be dissolved at the option of the Trustee (with the prior written consent of the Obligor) and in such case the Certificates will be redeemed by the Trustee in whole, but not in part: (a) at any time (if the Floating Periodic Distribution Provisions are not specified in the applicable Final Terms as being applicable); or (b) on any Periodic Distribution Date (if the Floating Periodic Distribution Provisions are specified in the applicable Final Terms as being applicable), - 68 -
81. (such redemption date being the "Early Tax Dissolution Date"), on giving not less than the Minimum Notice Period nor more than the Maximum Notice Period notice to the Certificateholders in accordance with Condition 18 (Notices) (which notice shall be irrevocable), at their Early Dissolution Amount (Tax), together with Periodic Distribution Amounts accrued (if any) to the Early Tax Dissolution Date, if: (i) the Trustee has or will become obliged to pay additional amounts as provided or referred to in Condition 13 (Taxation) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction or, by any authority in or of a Relevant Jurisdiction having a power to tax), which change or amendment becomes effective on or after the Issue Date and such obligation cannot be avoided by the Trustee taking reasonable measures available to it; (ii) the Obligor has or will become obliged to pay additional amounts pursuant to the terms of any of the Transaction Documents as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction or, by any authority in or of a Relevant Jurisdiction having a power to tax), which change or amendment becomes effective on or after the Issue Date and such obligation cannot be avoided by the Obligor taking reasonable measures available to it, (together, a "Tax Event"), provided, however, that no such notice of dissolution shall be given earlier than: (A) where the Trust may be dissolved at any time, 90 days prior to the earliest date on which: (i) the Trustee would be obliged to pay such additional amounts if a payment in respect of the Certificates were then due; or (ii) the Obligor would be obliged to pay such additional amounts if a payment under the Transaction Documents were then due; or (B) where the Trust may be dissolved only on a Periodic Distribution Date, 60 days prior to the Periodic Distribution Date occurring immediately before the earliest date on which: (i) the Trustee would be obliged to pay such additional amounts if a payment in respect of the Certificates were then due; or (ii) the Obligor would be obliged to pay such additional amounts if a payment under the Transaction Documents were then due. Prior to the publication of any notice of dissolution pursuant to this paragraph, the Trustee or the Obligor (as the case may be) shall deliver to the Principal Paying Agent: (1) a certificate signed by a director acting on behalf of the Trustee or an authorised signatory of the Obligor (as the case may be), which shall be binding on the Certificateholders, stating that the Trustee is entitled to effect such dissolution and setting forth a statement of facts showing that the conditions precedent in (i) or (ii) above (as applicable) to the right of the Trustee so to dissolve have occurred; and (2) an opinion of independent legal advisers of recognised standing to the effect that the Trustee or the Obligor (as the case may be) has or will become obliged to pay such additional amounts as a result of such change or amendment. Upon the expiry of any such notice as is referred to in this Condition 12.2, the Trustee shall be bound to dissolve the Trust in accordance with this Condition 12.2 and the Trustee shall be bound to redeem the Certificates. Upon such dissolution as aforesaid redemption, the Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. 12.3 Dissolution at the Option of the Trustee If the "Optional Dissolution (Call) Option" is specified in the applicable Final Terms as being applicable, the Obligor may in its sole discretion deliver to the Trustee a duly completed Exercise Notice in accordance with the provisions of the Sale Undertaking and, on receipt of such notice, - 69 -
82. the Trustee shall , on giving not less than the Minimum Notice Period nor more than the Maximum Notice Period irrevocable notice to the Certificateholders in accordance with Condition 18 (Notices) redeem all or, if so specified in the relevant Exercise Notice, some only of the Certificates on the Optional Dissolution Date (which will also be specified in the relevant Exercise Notice) at the Optional Dissolution Amount (Call), together with Periodic Distribution Amounts accrued (if any) to the Optional Dissolution Date. The Optional Dissolution (Call) Option and the Optional Redemption (Investor Put) Option shall not both be specified as applicable in the applicable Final Terms in respect of any single Series of Certificates. 12.4 Redemption at the Option of the Certificateholders If the "Optional Redemption (Investor Put) Option" is specified in the applicable Final Terms as being applicable, upon the holder of any Certificate giving to the Trustee not less than the Minimum Notice Period nor more than the Maximum Notice Period notice the Trustee will, upon the expiry of such notice, subject to, and in accordance with this Condition 12.4, redeem such Certificate on the relevant Optional Redemption Date at the Optional Redemption Amount. The Optional Redemption Amount shall be paid on the relevant Optional Redemption Date together, if appropriate, with the Periodic Distribution Amounts on such Certificate accrued to (but excluding) the relevant Optional Redemption Date. To exercise its Optional Redemption (Investor Put) Option to require the redemption of the Certificates under this Condition 12.4, a Certificateholder must, where a Certificate is an Individual Certificate, deliver, at the specified office of any Paying Agent at any time during the normal business hours of such Paying Agent, a duly completed and signed notice of exercise in the form (for the time being current) obtainable from the specified office of any Paying Agent (an "Individual Certificate Put Notice") and in which the Certificateholder must specify a bank account to which payment is to be made under this Condition 12.4 and the face amount of the Certificate be redeemed and, if less than the full face amount of the Certificate is to be redeemed, an address to which a new Individual Certificate in respect of the balance of such Certificate is to be sent subject to and in accordance with the Conditions in each case accompanied by the Certificate or evidence satisfactory to the Paying Agent concerned that the Certificate will, following delivery of the Individual Certificate Put Notice, be held to its order or under its control. If a Certificate is represented by a Global Certificate or is an Individual Certificate and held through Euroclear or Clearstream, Luxembourg, then to exercise the Optional Redemption (Investor Put) Option to require redemption of such Certificate the holder of such Certificate must, within the notice period, give notice to the Principal Paying Agent of such exercise (including the face amount of the Certificates in respect of which such option is exercised) in accordance with the standard procedures of Euroclear and Clearstream, Luxembourg (which may include notice being given on his instructions by Euroclear or Clearstream, Luxembourg or any common depositary for them to the Principal Paying Agent by electronic means) in a form acceptable to Euroclear and Clearstream, Luxembourg from time to time (a "Global Certificate Put Notice", with each Individual Certificate Put Notice and Global Certificate Put Notice being a "Put Notice") and, if a Certificate is represented by a Global Certificate, at the same time present or procure the presentation of the relevant Global Certificate to the Principal Paying Agent for notation accordingly. All notices to be given by any Certificateholder to the Trustee under this Condition 12.4 must be given in accordance with Condition 18 (Notices). Any Put Notice given by a Certificateholder pursuant to this Condition 12.4 shall be irrevocable and the Trustee will redeem all Certificates which are the subject of a validly delivered Put Notice on the relevant Optional Redemption Date. The Optional Dissolution (Call) Option and the Optional Redemption (Investor Put) Option shall not both be specified as applicable in the applicable Final Terms in respect of any single Series of Certificates. 12.5 Dissolution following a Dissolution Event Upon the occurrence of a Dissolution Event which is continuing, the Certificates may be redeemed at the relevant Final Dissolution Amount together with any Periodic Distribution Amounts payable - 70 -
83. on the Dissolution Event Redemption Date , if the conditions set out in Condition 15 (Dissolution Events) are satisfied, and the Trust will be dissolved by the Trustee. 12.6 No Other Dissolution Neither the Trustee nor any Certificateholders shall be entitled to redeem the Certificates at its option otherwise than as provided in this Condition 12. The Trustee shall not be entitled to redeem the Certificates or dissolve the Trust other than in accordance with this Condition 12 and Condition 15 (Dissolution Events). 12.7 Purchase and Cancellation (a) Purchases The Obligor or any of its Subsidiaries may at any time purchase Certificates at any price in the open market or otherwise. (b) Cancellation of Certificates held by the Obligor and/or any of its Subsidiaries Following any purchase of Certificates by or on behalf of the Obligor or any of its Subsidiaries pursuant to this Condition 12.7, against cancellation of such Certificates pursuant to Condition 12.8 (Cancellation): 12.8 (i) the Sale Undertaking may be exercised by the Obligor in respect of the transfer to the Obligor of the relevant portion of the Wakala Portfolio with an aggregate Value not greater than the aggregate face amount of the proportion of Certificates purchased (the "Cancellation Proportion"); and (ii) the Cancellation Proportion of the outstanding the Deferred Sale Price (as determined on the relevant date on which such Certificates are to be cancelled, immediately prior to the redemption and cancellation of the such Certificates) shall be deemed to be cancelled with effect from the relevant cancellation date. Cancellation All Certificates which are redeemed, and all Certificates purchased by or on behalf of the Obligor or any of its Subsidiaries and delivered by the Obligor to the Trustee pursuant to the Sale Undertaking for cancellation, will be delivered by the Trustee to the Principal Paying Agent for cancellation and will forthwith be cancelled and accordingly such Certificates may not be held, reissued or resold. 12.9 Effect of payment in full of Dissolution Amount Upon payment in full of the relevant Dissolution Amount in respect of the Certificates of any Series together with any Periodic Distribution Amount accrued but unpaid and the dissolution of the Trust in accordance with this Condition 12, such Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect of such Certificates and the Trustee shall have no further obligations in respect thereof. 13. TAXATION All payments in respect of the Certificates shall be made without withholding or deduction for, or on account of, any Taxes, unless the withholding or deduction of the Taxes is required by law. In such event, the Trustee will pay to the Certificateholders additional amounts as shall be necessary in order that the net amounts received by the Certificateholders after such withholding or deduction shall equal the respective amounts due and payable to any Certificateholder which would have otherwise been receivable in the absence of such withholding or deduction, except that no such additional amount shall be payable to any Certificateholder: (a) who is liable for such Taxes in respect of such Certificate by reason of having some connection with any Relevant Jurisdiction other than the mere holding of such Certificate; - 71 -
84. or (b) where (in the case of the payment of face amounts or Periodic Distribution Amounts on dissolution) the relevant Individual Certificate is surrendered for payment more than 30 days after the Relevant Date except to the extent that the relevant Certificateholder would have been entitled to such additional amount if it had surrendered the relevant Individual Certificate on the last day of such period of 30 days. The Transaction Documents provide that all payments thereunder by the Obligor shall be made without any deduction or withholding for, or on account of, any present or future Taxes imposed by the Relevant Jurisdictions unless required by law and without set-off or counterclaim of any kind, and, if there is any such deduction or withholding, the Obligor shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no withholding or deduction had been made. 14. PRESCRIPTION Claims for payment in respect of the Certificates will become void unless made within a period of 10 years (in the case of Dissolution Amounts and Optional Redemption Amounts) and five years (in the case of Periodic Distribution Amounts) after the Relevant Date thereof. 15. DISSOLUTION EVENTS If any of the following events occurs and is continuing (each, a "Dissolution Event"): (a) default is made in the payment of the Dissolution Amount or any Optional Redemption Amount on the date fixed for payment thereof and such default continues for a period of seven Business Days, or default is made in the payment of any Periodic Distribution Amount on the due date for payment thereof and such default continues for a period of 14 days; or (b) the Trustee fails to perform or comply with any of the obligations expressed to be assumed by it in the Transaction Documents to which it is a party and such default is not capable of remedy (in the opinion of the Delegate) or if capable of remedy (in the opinion of the Delegate) is not remedied within 30 days after written notice is given by the Delegate to the Trustee; or (c) an Obligor Event; or (d) the Trustee repudiates any Transaction Document to which it is a party or does or causes to be done any act or thing evidencing an intention to repudiate any Transaction Document to which it is a party; or (e) at any time it is or will become unlawful for the Trustee (by way of insolvency or otherwise) to perform or comply with any of its obligations under the Transaction Documents or any of the obligations of the Trustee under the Transaction Documents are not or cease to be legal, valid, binding and enforceable; or (f) either: (i) the Trustee becomes insolvent or is unable to pay its debts as they fall due; or (ii) an administrator or liquidator of the whole or substantially the whole of the undertaking, assets and revenues of the Trustee is appointed (or application for any such appointment is made); or (iii) the Trustee takes any action for a readjustment or deferment of any of its obligations or makes a general assignment or an arrangement or composition with or for the benefit of its creditors or declares a moratorium in respect of any of its indebtedness or any guarantee of any indebtedness given by it; or (iv) the Trustee ceases or threatens to cease to carry on all or substantially the whole of its business (otherwise than for the purposes of or pursuant to an amalgamation, reorganisation or restructuring whilst solvent); or (g) an order or decree is made or an effective resolution is passed for the winding up, liquidation or dissolution of the Trustee; or - 72 -
85. (h) any event occurs which under the laws of the Cayman Islands has an analogous effect to any of the events referred to in paragraph (f) and (g) above, then the Delegate may (subject to it being indemnified and/or secured and/or prefunded to its satisfaction) or shall, if it has been notified of the occurrence of a Dissolution Event by the Trustee or the Obligor, give notice in writing of the occurrence of such Dissolution Event to the Certificateholders in accordance with Condition 18 (Notices) with a request to such holders to indicate if they wish the Trust to be dissolved. If so requested in writing by Certificateholders representing at least one-fifth in face amount of the Certificates for the time being outstanding, the Delegate shall (subject to it being indemnified and/or secured and/or prefunded to its satisfaction), by written notice addressed to the Trustee and the Obligor (a "Dissolution Notice"), declare the Certificates to be immediately due and payable, whereupon they shall become immediately due and payable at their Final Dissolution Amount together with accrued Periodic Distribution Amounts (if any) on the date specified in such notice (the "Dissolution Event Redemption Date"). Notice of a Dissolution Notice shall promptly be given to the Certificateholders in accordance with Condition 18 (Notices). Upon payment in full of such amounts, the Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. For the purpose of (a) above, amounts shall be considered due in respect of the Certificates (including for the avoidance of doubt any amounts calculated as being payable under Condition 8 (Fixed Periodic Distribution Provisions), Condition 9 (Floating Periodic Distribution Provisions) and Condition 12 (Capital Distributions of Trust)) notwithstanding that the Trustee has at the relevant time insufficient funds or Trust Assets to pay such amounts. For the purposes of these Conditions, "Obligor Event" means: (i) (A) an amount less than the Required Amount is deposited into the Transaction Account on the Business Day prior to a Periodic Distribution Date and such failure to deposit the Required Amount to the Transaction Account continues for a period of seven Business Days; or (B) insufficient funds are deposited to the Transaction Account on the Business Day prior to the Dissolution Date to allow the Trustee to pay the relevant Dissolution Amount due and payable on such Dissolution Date and the insufficiency in funds in the Transaction Account continues for a period of 14 days; or (ii) the Obligor defaults in the performance or observance of any of its other material obligations under or in respect of the Transaction Documents to which it is a party, (except in any case where, in the opinion of the Delegate, the failure is incapable of remedy where no such continuation or notice as is hereinafter mentioned will be required), the default continues for a period of 30 days after written notice thereof, addressed to the Obligor by the Delegate, has been delivered to the Obligor; provided, however, that the failure by the Obligor (acting in its capacity as Service Agent) to perform or observe the obligations set out in clause 4.1.4(c) or clause 4.2 of the Service Agency Agreement will not constitute an Obligor Event; or (iii) any indebtedness of the Obligor or any of its Material Subsidiaries is not paid when due or within any applicable grace period or becomes due and payable prior to its specified maturity (and, in the case of a guarantee or indemnity, is called), provided that it shall not constitute an Obligor Event unless the aggregate amount (or its equivalent in U.S. dollars) of all such indebtedness either alone or when aggregated with all such other indebtedness, which shall remain unpaid or unsatisfied, as the case may be, shall be more than U.S.$50,000,000; or (iv) the Obligor or any of its Material Subsidiaries takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, nationalisation, dissolution, administration or re-organisation (whether by way of voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any substantial part or all of its revenues and - 73 -
86. assets and such proceedings are not frivolous or vexatious or are not being actively contested in good faith by the Obligor or , as the case may be, such Material Subsidiary save: (i) in the case of the Obligor, for the purposes of reorganisation on terms approved by an Extraordinary Resolution; or (ii) in the case of a Material Subsidiary, for the purposes of a solvent consolidation, amalgamation or restructuring, pursuant to which some or all the assets of such Material Subsidiary are transferred to any one or more members of the Group; or (v) the Obligor or any of its Material Subsidiaries ceases to carry on the whole or substantially all of its business save for the purposes of reorganisation on terms previously approved by an Extraordinary Resolution provided that a bona fide disposal for full value on an arm's length basis of the whole or substantially all of the business of the Obligor shall not be deemed in any event to be an Obligor Event for the purposes of this sub-paragraph; or (vi) the Obligor or any of its Material Subsidiaries is unable to pay its debts as they fall due, commences negotiations with its creditors as a whole or any one or more classes of its creditors with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of or a composition with its creditors; or (vii) any execution or distress is levied against, or an encumbrancer takes possession of, the whole or substantially all of the property, undertaking or assets of the Obligor or any of its Material Subsidiaries or any event occurs which under the laws of any jurisdiction has a similar or analogous effect, unless such enforcement proceedings are frivolous or vexatious or are being actively contested in good faith by the Obligor or any of its Material Subsidiaries; or (viii) the Obligor or any of its Material Subsidiaries fails to comply with or pay any sum which amount shall not be less than U.S.$50,000,000 due from it under any final non-appealable judgment or any final non-appealable order made or given by any court of competent jurisdiction and such failure continues for period of 30 days next following the service by the Delegate on the Obligor of notice requiring the same to be paid/remedied; or (ix) at any time (following the expiry of any grace period permitted by applicable law) it is or becomes unlawful for the Obligor to perform or comply with any or all of its material obligations under or in respect of the Transaction Documents to which it is a party. For this purpose, the "winding-up", "dissolution" or "administration" of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors. "Material Subsidiary" means, at any time, a Subsidiary: (i) whose total assets (consolidated, in the case of a Subsidiary which itself has Subsidiaries) exceed 25 per cent. of the consolidated total assets of the Obligor; or (ii) whose revenues (consolidated, in the case of a Subsidiary which itself has Subsidiaries) exceed 25 per cent. of the consolidated net operating revenues of the Obligor. For these purposes, the total assets and revenues of such Subsidiary shall be determined by reference to its then most recent audited annual financial statements (or, if none, its then most recent management accounts) and the consolidated total assets and consolidated net operating revenues of the Obligor shall be determined by reference to its then most recent audited annual consolidated financial statements, in each case adjusted, as the Auditors may consider appropriate, to take account of any changes in circumstances since the date as of which such financial statements - 74 -
87. (or management accounts) were prepared. A report of the Auditors that in their opinion a Subsidiary of the Obligor is or is not or was or was not at any particular time or throughout any specified period a Material Subsidiary shall, in the absence of manifest error, be conclusive and binding on all parties. 16. ENFORCEMENT AND EXERCISE OF RIGHTS 16.1 Enforcement Upon the occurrence of a Dissolution Event, to the extent that the amounts payable in respect of the Certificates have not been paid in full, the Trustee (or the Delegate, acting on behalf of the Trustee) (subject, in each case, to being indemnified and/or secured and/or prefunded to its satisfaction) shall, upon being requested in writing by Certificateholders representing at least onefifth in face amount of the Certificates for the time being outstanding, take one or more of the following steps: 16.2 (a) enforce the Obligor's obligations under the Transaction Documents to which the Obligor is a party; and/or (b) take such other steps as the Delegate may consider necessary to recover amounts due to the Certificateholders. Delegate not obliged to take action Neither the Trustee nor the Delegate shall not be bound in any circumstances to take any action to enforce or to realise the relevant Trust Assets or take any action against (as applicable) the Trustee and/or the Obligor under any Transaction Document to which either of the Trustee or the Obligor is a party unless directed or requested to do so: (a) by an Extraordinary Resolution; or (b) in writing by the holders of at least one-fifth in aggregate face amount of the Certificates then outstanding and in either case then only if it is indemnified and/or secured and/or prefunded to its satisfaction against all liabilities to which it may thereby render itself liable or which it may incur by so doing. 16.3 Direct enforcement by Certificateholders No Certificateholder shall be entitled to proceed directly against the Trustee or the Obligor unless: (a) the Delegate, having become bound so to proceed, fails to do so within 30 days of becoming so bound and such failure is continuing; and (b) the relevant Certificateholder (or such Certificateholder together with the other Certificateholders who propose to proceed directly against the Trustee or the Obligor) holds at least one-fifth of the aggregate face amount of the Certificates then outstanding. Under no circumstances shall the Trustee, the Delegate or any Certificateholder have any right to cause the sale or other disposition of any of the relevant Trust Assets except pursuant to the Purchase Undertaking, and the sole right of the Trustee, Delegate and the Certificateholders against the Trustee and the Obligor (as applicable) shall be to enforce their respective obligations under the Transaction Documents. 16.4 Limited recourse Conditions 16.2 (Delegate not obliged to take action) and 16.3 (Direct enforcement by Certificateholders) are subject to this Condition 16.4. After distributing the net proceeds of the Trust Assets in accordance with Condition 6.2 (Application of Proceeds from the Trust Assets), the obligations of the Trustee in respect of the Certificates shall be satisfied and no holder of the Certificates may take any further steps against the Trustee or the Delegate to recover any further sums in respect of the Certificates and the right to receive any such sums unpaid shall be extinguished. In particular, no Certificateholder shall be entitled to take any action against the Trustee, the Delegate or any other person (other than the Obligor) to recover any such sum in respect of the Certificates or Trust Assets, or petition or to take any other steps for the winding-up of the Trustee, nor shall any Certificateholders have any claim in respect of the Trust Assets of any other trust established by the Trustee. - 75 -
88. 17 . REPLACEMENT OF INDIVIDUAL CERTIFICATES Should any Individual Certificate be lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Registrar upon payment by the claimant of such costs and expenses as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Trustee may require. Mutilated or defaced Individual Certificates must be surrendered before replacements will be issued. 18. NOTICES All notices regarding Certificates will be in the English language and will be deemed to be validly given if published in one or more leading English language daily newspapers of general circulation in London and the Gulf region. It is expected that any such publication in a newspaper will be made in the Financial Times in London and Gulf News in the Gulf region. The Trustee shall also ensure that notices are duly published in a manner which complies with the rules and regulations of any stock exchange or other relevant authority on which the Certificates are for the time being listed or by which they have been admitted to trading. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published in more than one newspaper, on the date of the first publication in all required newspapers. If publication as provided above is not practicable, a notice will be given in such other manner, and will be deemed to have been given on such date, as the Trustee shall approve. Until such time as any Individual Certificates are issued, there may, so long as any Global Certificate representing the Certificates is held in its entirety on behalf of Euroclear and/or Clearstream, Luxembourg, be substituted for such publication in such newspaper(s) the delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg for communication by them to the holders of the Certificates and, in addition, for so long as any Certificates are listed on a stock exchange or are admitted to trading by another relevant authority and the rules of that stock exchange or relevant authority so require, such notice will be published in a daily newspaper of general circulation in the place or places required by those rules. Any such notice shall be deemed to have been given to the holders of the Certificates on the same day on which the said notice was given to Euroclear and/or Clearstream, Luxembourg. Notices to be given by any Certificateholder shall be in writing and given by lodging the same, together with the relative Certificate or Certificates, with the Principal Paying Agent. Whilst any of the Certificates are represented by a Global Certificate, such notice may be given by any holder of a Certificate to the Principal Paying Agent through Euroclear and/or Clearstream, Luxembourg, as the case may be, in such manner as the Principal Paying Agent and Euroclear and/or Clearstream, Luxembourg, as the case may be, may approve for this purpose. 19. MEETINGS OF CERTIFICATEHOLDERS, AUTHORISATION AND DETERMINATION 19.1 Meetings of Certificateholders MODIFICATION, WAIVER, The Master Trust Deed contains provisions for convening meetings of Certificateholders to consider any matter affecting their interests, including the modification or abrogation by Extraordinary Resolution of any of these Conditions or any of the provisions of the Trust Deed. The quorum at any meeting for passing an Extraordinary Resolution will be one or more Certificateholders, proxies or representatives holding or representing in the aggregate at least a majority in face amount of the Certificates for the time being outstanding, or at any adjourned such meeting one or more Certificateholders, proxies or representatives present whatever the face amount of the Certificates held or represented by him or them except that any meeting the business of which includes the modification of certain provisions of the Certificates (including modifying the Maturity Date, reducing or cancelling any amount payable in respect of the Certificates or altering the currency of payment of the Certificates or amending certain covenants given by the Trustee in the Master Trust Deed), the quorum shall be one or more persons present holding or representing at least 75 per cent., in aggregate face amount of the Certificates for the time being outstanding, or at any adjourned such meeting one or more persons present holding or representing at least 25 per cent., in aggregate face amount of the Certificates for the time being outstanding. - 76 -
89. 19 .2 Extraordinary Resolutions To be passed, an Extraordinary Resolution requires a majority in favour consisting of at least twothirds of the persons voting on a show of hands or, if a poll is duly demanded, a majority of at least two-thirds of the votes cast on such poll and, if duly passed, will be binding on all holders of the Certificates, whether or not they are present at the meeting and whether or not voting. The Master Trust Deed also provides that an Extraordinary Resolution may be passed by: (a) a resolution in writing signed by or on behalf of the holders of at least 75 per cent, in face amount of the Certificates which resolution may be contained in one document or in several documents in like form each signed by or on behalf of one or more of the Certificateholders; or (b) consent being given by way of electronic consents through the relevant Clearing System(s) (in a form satisfactory to the Delegate) by or on behalf of the holders of at least 75 per cent. in face amount of the Certificates. 19.3 Modification The Delegate may agree, without the consent or sanction of the Certificateholders, to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of these Conditions or any of the provisions of the Trust Deed or other Transaction Documents or determine, without any such consent or sanction as aforesaid, that any Dissolution Event shall not be treated as such, which in any such case is not, in the opinion of the Delegate, materially prejudicial to the interests of the Certificateholders or may agree, without any such consent as aforesaid, to any modification which, in its opinion, is of a formal, minor or technical nature or to correct a manifest or proven error. The Delegate shall also, without the consent or sanction of the Certificateholders, agree to any modification of the Conditions in accordance with and subject to the provisions of Condition 9.7 (Benchmark Replacement). 19.4 Entitlement of the Delegate In connection with the exercise by it of any of the powers, trusts, authorities and discretions vested in it (including, without limitation, any modification, waiver, authorisation or determination), the Delegate shall have regard to the general interests of the Certificateholders as a class (but shall not have regard to any interests arising from circumstances particular to individual Certificateholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Certificateholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof) and the Delegate shall not be entitled to require, nor shall any Certificateholder be entitled to claim from the Delegate or any other person, any indemnification or payment in respect of any tax consequence of any such exercise upon individual Certificateholders except to the extent provided in Condition 13 (Taxation). Any modification, abrogation, waiver, authorisation or determination shall be binding on all the Certificateholders and shall be notified to the Certificateholders as soon as practicable thereafter in accordance with Condition 18 (Notices). 20. INDEMNIFICATION AND LIABILITY OF THE DELEGATE AND THE TRUSTEE 20.1 Indemnification The Trust Deed contains provisions for the indemnification of each of the Delegate and the Trustee in certain circumstances and for its relief from responsibility, including provisions relieving it from taking action unless indemnified and/or secured and/or prefunded to its satisfaction as well as provisions entitling the Delegate to be paid its costs and expenses in priority to the claims of the Certificateholders. In particular, in connection with the exercise of certain rights arising after the occurrence of a Dissolution Event in respect of the Trust Assets, the Delegate shall not be required to take any action unless directed to do so in accordance with Condition 16.2 (Delegate not obliged to take action). - 77 -
90. 20 .2 No liability Neither the Delegate nor the Trustee makes any representation and assumes no responsibility for the validity, sufficiency or enforceability of the obligations of the Obligor under any Transaction Document to which the Obligor is a party (or are parties) and shall not under any circumstances have any liability or be obliged to account to the Certificateholders in respect of any payment which should have been made by the Obligor, but is not so made, and shall not in any circumstances have any liability arising from the Trust Assets other than as expressly provided in the Conditions or in the Trust Deed. Each of the Delegate and the Trustee is exempted from: (a) any liability in respect of any loss or theft of the Trust Assets or any cash, (b) any obligation to insure the Trust Assets or any cash and (c) any claim arising from the fact that the Trust Assets or any cash are held by or on behalf of the Trustee or on deposit or in an account with any depository or clearing system or are registered in the name of the Trustee or its nominee, unless such loss or theft arises as a result of wilful default or fraud of the Trustee or the Delegate, as the case may be. 20.3 Waiver Subject to Condition 15 (Dissolution Events) and Condition 16 (Enforcement and Exercise of Rights), the Trustee waives any right to be indemnified by the Certificateholders in circumstances where the Trust Assets are insufficient therefor. 21. FURTHER ISSUES In respect of each Series, the Trustee may from time to time (but subject always to the provisions of the Master Trust Deed) without the consent of the Certificateholders create and issue Additional Certificates having the same terms and conditions as the outstanding Certificates of such Series or terms and conditions which are the same in all respects save for the date and amount of the first payment of the Periodic Distribution Amount and the date from which such Periodic Distribution Amounts start to accrue, and so that the same shall be consolidated and form a single series with the outstanding Certificates of such Series. Any Additional Certificates which are to form a single Series with the outstanding Certificates of a particular Series shall be constituted by a declaration of commingling of assets which will be supplemental to the Master Trust Deed (as further supplemented by the relevant Supplemental Trust Deed(s)). References in these Conditions to the "Certificates" include (unless the context requires otherwise) any other Certificates issued pursuant to this Condition and forming a single series with such Certificates. In connection with an issuance of Additional Certificates in accordance with this Condition 21, pursuant to the Sale Undertaking the Trustee grants to the Obligor the right to require the Trustee to purchase and accept the transfer of all of the Obligor's interests, rights, title, benefits and entitlements, present and future, in, to and under the Additional Assets from the Obligor at the Additional Assets Exercise Price. In the event that: (a) the Trustee has exercised its rights under this Condition 21 to issue Additional Certificates; and (b) in connection with such Additional Certificates, the Trustee and the Obligor have entered into: (i) an Additional Assets Sale Agreement in accordance with the terms of the Sale Undertaking pursuant to which the Obligor has sold to the Trustee all of its rights, title, interest and benefit in and to certain Additional Assets, and/or (ii) a Commodity Murabaha Investment pursuant to the Master Murabaha Agreement, the Trustee will execute a declaration of commingling of assets for and on behalf of the holders of the existing Certificates and the holders of such Additional Certificates so issued, declaring that any such Additional Assets shall be commingled with the existing Wakala Portfolio (and the existing Wakala Assets together with such Additional Assets shall comprise the Wakala Portfolio of that Series) and will be commingled together with any new and/or existing Commodity Murabaha Investment to form the Sukuk Portfolio for that Series, and shall collectively comprise part of the Trust Assets for the benefit of the holders of the existing Certificates and the holders of such Additional Certificates as tenants - 78 -
91. in common pro rata according to the face amount of Certificates held by each Certificateholder , in accordance with the relevant Trust Deed. 22. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 No person shall have any right to enforce any term of these Conditions under the Contracts (Rights of Third Parties) Act 1999, but this does not affect any right or remedy of any person which exists or is available apart from that Act. 23. GOVERNING LAW AND DISPUTE RESOLUTION 23.1 Governing law The Agency Agreement, the Trust Deed (including these Conditions) and the Certificates and any non-contractual obligations arising out of or in connection with the Agency Agreement, the Trust Deed (including these Conditions) and the Certificates are governed by, and shall be construed in accordance with, English law. 23.2 Arbitration Subject to Condition 23.3 (Court of Law), any dispute, claim, difference or controversy arising out of, relating to or having any connection with the Trust Deed and/or the Certificates (including any dispute, claim, difference or controversy regarding the existence, validity, interpretation, performance, breach or termination of the Trust Deed and/or the Certificates or the consequences of their nullity and any dispute, claim, difference or controversy relating to any non-contractual obligations arising out of or in connection with them) (a "Dispute") shall be referred to and finally resolved by arbitration under the LCIA Arbitration Rules (the "Rules"), which Rules (as amended from time to time) are incorporated by reference into this Condition 23.2. For these purposes: 23.3 (a) the seat, or legal place, of arbitration will be London; (b) the governing law of the arbitration agreement shall be English law; (c) there shall be three arbitrators, each of whom shall be disinterested in the arbitration, shall have no connection with any party thereto and shall be an attorney experienced in international securities transactions; and (d) the language of the arbitration shall be English. Court of law Notwithstanding Condition 23.2 (Arbitration) above, the Delegate (or, but only where permitted to take action in accordance with these presents, any Certificateholder) may, in the alternative, and at its sole discretion, by notice in writing to the Trustee and the Obligor: (a) within 28 days of service of a Request for Arbitration (as defined in the Rules); or (b) in the event no arbitration is commenced, require that a Dispute be heard by a court of law. If the Delegate or any Certificateholder (where permitted so to do) gives such notice, the Dispute to which such notice refers shall be determined in accordance with Condition 23.4 (Submission to Jurisdiction) and, subject as provided below, any arbitration commenced under Condition 23.2 (Arbitration) in respect of that Dispute will be terminated. With the exception of the Delegate (whose costs will be borne by the Trustee, failing which the Obligor), each person who gives such notice and the recipient of that notice will bear its own costs in relation to the terminated arbitration. If any notice to terminate the arbitration in accordance with Condition 23.3 (Court of Law) is given after service of any Request for Arbitration in respect of any Dispute, the Delegate or the relevant Certificateholder, as the case may be, must also promptly give notice to the LCIA Court and to any Tribunal (each as defined in the Rules) already appointed in relation to the Dispute that such Dispute will be settled by the courts. Upon receipt of such notice by the LCIA Court, the arbitration - 79 -
92. and any appointment of any arbitrator in relation to such Dispute will immediately terminate . Any such arbitrator will be deemed to be functus officio. The termination is without prejudice to: 23.4 (a) the validity of any act done or order made by that arbitrator or by the court in support of that arbitration before his appointment is terminated; (b) his entitlement to be paid his proper fees and disbursements; and (c) the date when any claim or defence was raised for the purpose of applying any limitation bar or any similar rule or provision. Submission to jurisdiction In the event that a notice pursuant to Condition 23.3 (Court of Law) is issued, the following provisions shall apply: 23.5 (a) subject to paragraph (b) below, the courts of England or the courts of the Dubai International Financial Centre ("DIFC"), at the option of the Delegate or any Certificateholder (where permitted so to do in accordance with these presents), shall each have non-exclusive jurisdiction to settle any Dispute and each of the Trustee and the Obligor submits to the exclusive jurisdiction of such courts; (b) each of the Trustee and the Obligor waives any objection to the courts of either England or the DIFC on the grounds that they are an inconvenient or inappropriate forum to settle any Dispute; and (c) this Condition 23.4 is for the benefit of the Delegate and the Certificateholders only. As a result, and notwithstanding paragraph (a) above, the Delegate and any Certificateholder (where permitted so to do) may start proceedings relating to a Dispute ("Proceedings") in any other courts with jurisdiction. To the extent allowed by law, the Delegate and the Certificateholders (where permitted to do so) may start concurrent Proceedings in any number of jurisdictions. Judgment Interest The parties recognise that the receipt and payment of interest is not permitted under Shari'a and accordingly agree that no interest (nor any cost of funds or any amounts in respect of any loss of opportunity) will be payable or receivables under or in connection with the Agency Agreement, the Trust Deed (including these Conditions) and the Certificates, and, if any Proceedings are brought by or on behalf of any party under Agency Agreement, the Trust Deed (including these Conditions) and the Certificates, each party agrees it will: (a) not claim judgment interest under, or in connection with, such Proceedings; and (b) to the fullest extent permitted by law, waive all and any entitlement it may have to judgment interest awarded in its favour by any court as a result of such Proceedings. For the avoidance of doubt, nothing in this Condition 23 shall be construed as a waiver of rights in respect of Periodic Distribution Amounts or Dissolution Amounts payable under the Certificates, Revenues payable under the Service Agency Agreement, any Deferred Sale Price payable under the Master Murabaha Agreement, any Exercise Price or Optional Put Exercise Price payable under, and as defined in, the Purchase Undertaking, any Exercise Price or Optional Call Exercise Price payable under, and as defined in, the Sale Undertaking shall be construed as a waiver of rights in respect of Periodic Distribution Amounts payable under the Certificates, Revenues payable under the Service Agency Agreement, or Deferred Sale Price, Murabaha Profit, Murabaha Profit Instalment or profit or principal of any kind howsoever described payable by the Obligor (in any capacity) or the Trustee (in any capacity) pursuant to the Transaction Documents and/or the Conditions, howsoever such amounts may be described or re-characterised by any court or arbitral tribunal. 23.6 Waiver of Immunity - 80 -
93. The Obligor irrevocably and unconditionally waives any right to claim sovereign or other immunity from jurisdiction or execution and any similar defence and irrevocably and unconditionally consents to the giving of any relief or the issue of any process , including without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) or any order or judgment made or given in connection with any Proceedings or Disputes. 23.7 Appointment of Process Agent Each of the Trustee and the Obligor appoints Emirates NBD Bank PJSC, London Branch (attention of: Chief Executive Officer) at its registered office at Emirates NBD House, 25 Knightsbridge, London, SW1X 7LY, United Kingdom as its agent for service of process and agrees that, in the event of Emirates NBD Bank PJSC, London Branch ceasing so to act or ceasing to be registered in England, it will immediately (and in any event within 30 days of the event taking place) appoint another person as its agent for service of process in England in respect of any Proceedings or Disputes. Failure by a process agent to notify the person that appointed it of any process will not invalidate the relevant proceedings. Nothing herein shall affect the right to serve process in any other manner permitted by law. - 81 -
94. USE OF PROCEEDS The net proceeds from the issue of each Series of Certificates will be applied by the Trustee pursuant to the terms of the relevant Transaction Documents in the following proportion : (i) in the case of each Tranche of the relevant Series of Certificates, the Murabaha Investment Amount will be used to purchase Commodities from the Commodity Agent and on sell such Commodities to the Obligor for the Deferred Sale Price pursuant to a Murabaha Contract; and (ii) the Purchase Price will be used to purchase from the Obligor, in the case of the first Tranche of the relevant Series of Certificates, the Initial Wakala Portfolio or, in the case of each subsequent Tranche of the relevant Series of Certificates, the Additional Assets. The amounts subsequently received by the Obligor in consideration for the transactions entered into with the Trustee as set out above, including with respect to the proceeds received from the on-sale of any commodities by the Obligor, shall be invested in the Obligor's Islamic finance business. - 82 -
95. DESCRIPTION OF THE TRUSTEE General EI Sukuk Company Ltd . (previously EIB Sukuk Company Ltd.), a Cayman Islands exempted company with limited liability, was incorporated on 16 April 2007 under the Companies Law (as revised) of the Cayman Islands with company registration number 185691. The Trustee has been established as a special purpose vehicle for the sole purpose of issuing Certificates under the Programme and entering into the transactions contemplated by the Transaction Documents. The registered office of the Trustee is at c/o MaplesFS Limited, P.O. Box 1093, Queensgate House, Grand Cayman, KY1-1102, Cayman Islands, and its telephone number is +1 345 945 7100. The authorised share capital of the Trustee is U.S.$50,000 divided into 50,000 shares of a nominal or par value of U.S.$1.00 each, 250 of which have been issued. All of the issued shares (the "Shares") are fullypaid and are held by MaplesFS Limited, P.O. Box 1093, Boundary Hall, Cricket Square, Grand Cayman, KY1-1102, Cayman Islands as share trustee (the "Share Trustee") under the terms of a declaration of trust dated 6 June 2007 (as supplemented by a deed of appointment and retirement of trustees dated 24 May 2016) (the "Share Declaration of Trust") under which the Share Trustee holds the Shares in trust until the Termination Date (as defined in the Share Declaration of Trust). Prior to the Termination Date, the trust is an accumulation trust, but the Share Trustee has the power to benefit the Certificateholders or Qualified Charities (as defined in the Share Declaration of Trust). It is not anticipated that any distribution will be made by the Share Trustee whilst any Certificate is outstanding. Following the Termination Date, the Share Trustee will wind up the trust and make a final distribution to charity. The Share Trustee has no beneficial interest in, and derives no benefit (other than its fee for acting as Share Trustee) from, its holding of the Shares. Business of the Trustee The Trustee does not have any substantial liabilities other than in connection with the Certificates issued, or to be issued, under the Programme. The Certificates are the obligations of the Trustee alone and not the Share Trustee. The objects for which the Trustee is established are set out in the Amended and Restated Memorandum of Association of the Trustee as adopted on 6 June 2007. Financial Statements Since the date of its incorporation, no financial statements of the Trustee have been prepared. The Trustee is not required by Cayman Islands law, and does not intend, to publish financial statements. Directors of the Trustee The directors of the Trustee are as follows: Name Principal Occupation Norbert Neijzen Regional Head of Fiduciary, Middle East at Maples Fund Services (Middle East) Limited Stacy Bodden Vice President at MaplesFS Limited The business address of Norbert Neijzen is Maples Fund Services (Middle East) Limited, Unit C 1407, Level 14, Burj Daman, Dubai International Financial Centre, P.O. Box 506734, Dubai, United Arab Emirates. The business address of Stacy Bodden is MaplesFS Limited, P.O. Box 1093, Boundary Hall, Cricket Square, Grand Cayman, KY1-1102, Cayman Islands. There are no potential conflicts of interest between the private interests or other duties of the directors listed above and their duties to the Trustee. The Administrator MaplesFS Limited will also act as the corporate administrator of the Trustee (in such capacity, the - 83 -
96. "Corporate Administrator"). The office of the Corporate Administrator will serve as the general business office of the Trustee. Through the office, and pursuant to the terms of a corporate services agreement entered into between the Trustee and the Corporate Administrator and dated 25 May 2016 (the "Corporate Services Agreement"), the Corporate Administrator will perform in the Cayman Islands various administrative functions on behalf of the Trustee, including communications with shareholders and the general public, and the provision of certain clerical, administrative and other services until termination of the Corporate Services Agreement. In consideration of the foregoing, the Corporate Administrator will receive various fees payable by the Trustee at rates agreed upon from time to time, plus expenses. The terms of the Corporate Services Agreement provide that the Trustee may terminate the appointment of the Corporate Administrator by giving 30 days' notice to the Corporate Administrator at any time within 12 months of the happening of any certain stated events, including any breach by the Corporate Administrator of its obligations under the Corporate Services Agreement. In addition, the Corporate Services Agreement provides that the Corporate Administrator shall be entitled to retire from its appointment by giving at least three months' notice in writing. The Corporate Administrator will be subject to the overview of the Trustee's board of directors. The Corporate Services Agreement may be terminated (other than as stated above) by either the Trustee or the Corporate Administrator giving the other party at least three months' written notice. The Corporate Administrator's principal office is Boundary Hall, Cricket Square, P.O. Box 1984, Grand Cayman, KY1-1104, Cayman Islands. The directors of the Trustee are all employees or officers of the Corporate Administrator. The Trustee has no employees and is not expected to have any employees in the future. Cayman Islands Data Protection The Cayman Islands Government enacted the Data Protection Law, 2017 of the Cayman Islands (the "DPL") on 18 May 2017. The DPL introduces legal requirements for the Trustee based on internationally accepted principles of data privacy. Prospective investors should note that, by virtue of making investments in the Certificates and the associated interactions with the Trustee and its affiliates and/or delegates, or by virtue of providing the Trustee with personal information on individuals connected with the investor (for example, directors, trustees, employees, representatives, shareholders, investors, clients, beneficial owners or agents) such individuals will be providing the Trustee and its affiliates and/or delegates (including, without limitation, the Corporate Administrator) with certain personal information which constitutes personal data within the meaning of the DPL. The Trustee shall act as a data controller in respect of this personal data and its affiliates and/or delegates, such as the Corporate Administrator, may act as data processors (or data controllers in their own right in some circumstances). For further information on the application of the DPL to the Trustee, please refer to the privacy notice (a copy of which may be requested from the Corporate Administrator by email at dubai@maples.com), which provides an outline of investors' data protection rights and obligations as they relate to the investment in the Certificates. Oversight of the DPL is the responsibility of the Ombudsman's office of the Cayman Islands. Breach of the DPL by the Trustee could lead to enforcement action by the Ombudsman, including the imposition of remediation orders, monetary penalties or referral for criminal prosecution. - 84 -
97. SELECTED FINANCIAL INFORMATION The following tables set out in summary form certain financial information relating to the Group . Such information is extracted from the Financial Statements (which, including the auditor reports thereon, are incorporated by reference in this Base Prospectus) and, unless otherwise stated, such financial information has been audited. The financial information presented below should be read in conjunction with the Financial Statements (including the auditor reports thereon and the notes thereto) and other information included elsewhere in this Base Prospectus, including in "Presentation of Certain Financial and Other Information". Key Financial Information and Ratios The following tables set out certain key financial information and ratios in respect of the Group as at and for the six months ended 30 June 2020 and as at and for the years ended 31 December 2019, 31 December 2018 and 31 December 2017. As at and for the six months ended 30 June 2020 Income Statement Data Total operating income................................ General and administrative expenses........... Total net impairment loss1 ........................... Net profit/(loss) for the period2 ................... 1,140.0 (537.5) (591.0) 11.8 As at and for As at and for As at and the six the year for the year months ended 31 ended 31 ended 30 December December June 2019 2019 2018 (AED millions unless otherwise specified) 1,335.3 (544.1) (118.2) 673.0 2,670.3 (1,126.5) (482.8) 1,061.0 2,463.4 (1,153.0) (386.1) 924.2 As at and for the year ended 31 December 2017 2,392.3 (1,009.5) (680.8) 702.0 _______________ 1 2 Comprises "Net impairment loss on financial assets" and "Net impairment loss on non-financial assets". Referred to as "Profit for the year" in the 2019 Financial Statements and 2018 Financial Statements. Statement of Financial Position Data Total assets ............................................................. Financing receivables ............................................. Investments1 ........................................................... Customer acceptances ............................................ Total deposits2 ........................................................ Total equity attributable to equity holders .............. Profitability Indicators3 Net profit margin (per cent.)4 ................................. Return on average shareholders' equity (per cent.)4 Earnings per share (AED)4 ..................................... Capital Adequacy Indicators3 Capital adequacy ratio (per cent.)4.......................... Liquidity and Business Indicators4 Cost to income ratio (per cent.)4 ............................. Financing/customer deposits (per cent.)4 ................ Net financing growth (per cent.)4 ........................... Impaired financing receivables/gross financing receivables (per cent.)4 ........................................ Number of employees ............................................ As at and for the six months ended 30 June 2020 As at and for the year ended 31 December 2019 As at and for the year ended 31 December 2018 As at and for the year ended 31 December 2017 64,195.0 40,351.8 4,992.4 761.6 49,642.4 8,317.0 64,775.5 37,496.5 4,266.8 630.5 50,245.0 8,305.6 58,379.4 36,171.9 3,000.3 263.4 45,753.1 7,211.2 61,881.4 33,835.4 2,271.5 617.3 47,108.6 7,309.2 2.9 0.3 0.002 3.2 13.7 0.195 3.0 12.7 0.170 2.8 10.0 0.129 20.0 20.7 18.2 17.4 47.2 89.6 7.6 42.2 82.7 3.7 46.8 86.9 6.9 42.2 80.9 (6.9) 8.2 1,921 7.6 1,957 8.3 2,116 10.4 2,258 _______________ 1 2 3 4 Comprises "Investment securities" and "Investment properties". Comprises "Due to banks" and "Customer deposits". Unaudited. For further information, please see "Presentation of Certain Financial and Other Information – Alternative Performance Measures". Sources of Funding The Group's main source of funding has been customer and other banks' deposits, sukuks and shareholders' equity. The following table sets out the Group's funding from such sources as at 30 June 2020, 31 December - 85 -
98. 2019 , 31 December 2018 and 31 December 2017. As at 30 June 2020 Due to banks ........................................................... Customer deposits ................................................... Sukuk payable ......................................................... Total equity attributable to equity holders .......... 4,596.0 45,046.4 3,677.3 8,317.0 As at 31 As at 31 December December 2019 2018 (AED millions) 4,922.3 4,143.5 45,322.7 41,609.7 3,679.9 3,685.2 8,305.6 7,211.2 As at 31 December 2017 5,286.2 41,822.4 5,526.6 7,309.2 Assets and investments The following table sets out information in relation to the Group's assets and investments as at 30 June 2020, 31 December 2019, 31 December 2018 and 31 December 2017. As at 30 June 2020 Cash and deposits with Central Bank ...................... Due from banks ....................................................... Investment securities ............................................... Financing receivables .............................................. Customer acceptances ............................................. Investment properties .............................................. Property and equipment .......................................... Other assets ............................................................. Total assets ............................................................. 15,266.3 1,851.5 4,576.2 40,352.0 761.6 416.2 346.2 625.3 64,195.0 As at 31 As at 31 December December 2019 2018 (AED millions) 18,525.6 14,607.0 2,767.2 3,818.7 3,844.4 2,521.1 37,496.5 36,171.9 630.5 263.4 422.4 479.2 388.5 209.1 700.3 309.0 64,775.5 58,379.4 As at 31 December 2017 13,258.6 11,182.0 1,808.5 33,835.4 617.3 462.9 213.3 503.2 61.881.4 Maturity profile of assets and liabilities The following table sets out information regarding the maturity profile of the Group's assets and liabilities (based on their carrying values) as at 31 December 2019. For information regarding the maturity profile of the Group's assets and liabilities (based on their carrying values) as at 31 December 2018, see Note 35(q) to the 2018 Financial Statements. 31 December 2019 Assets Cash and deposits with Central Bank ...... Due from banks ....................................... Investments1 ............................................ Financing receivables .............................. Customer acceptances ............................. Property and equipment .......................... Other assets ............................................. Total assets ............................................. Liabilities Due to banks ........................................... Customer deposits ................................... Sukuk payable ......................................... Customer acceptances ............................. Other liabilities........................................ Total equity ............................................. Total liabilities and equity .................... Within 3 months Over 3 months to 1 year Undated and over 5 years Total 11,447.6 2,419.4 73.9 10,272.8 630.5 ⎯ 252.3 25,096.5 7,078.0 347.8 229.0 7,103.0 ⎯ ⎯ 0.9 14,758.8 ⎯ ⎯ 972.5 8,730.0 ⎯ ⎯ 14.4 9,716.9 ⎯ ⎯ 1,127.4 3,503.4 ⎯ ⎯ 34.5 4,665.2 ⎯ ⎯ 1,864.0 7,887.3 ⎯ 388.5 398.2 10,538.0 18,525.6 2,767.2 4,266.8 37,496.5 630.5 388.5 700.3 64,775.5 3,141.4 37,027.2 ⎯ 630.5 971.5 ⎯ 41,770.7 185.9 7,834.3 ⎯ ⎯ 0.6 ⎯ 8,020.8 ⎯ 161.5 3,679.9 ⎯ 14.4 ⎯ 3,855.8 ⎯ 79.7 ⎯ ⎯ 34.5 ⎯ 114.1 1,595.0 220.0 ⎯ ⎯ 893.4 8,305.6 11,014.1 4,922.3 45,322.7 3,679.9 630.5 1,914.4 8,305.6 64,775.5 _______________ 1 Over 1 Over 3 year to 3 years to 5 years years (AED millions) Comprises "Investment securities" and "Investment properties". - 86 -
99. Financing Receivables The following table sets out the financial activities undertaken by the Group which generated the Group 's financing receivables as at 30 June 2020, 31 December 2019, 31 December 2018 and 31 December 2017: As at 30 June 2020 At amortised cost Murabaha ................................................................ Credit card receivable.............................................. Wakala .................................................................... Istisna'a ................................................................... Ijara ......................................................................... Others ...................................................................... Total financing receivables ................................... As at 31 As at 31 December December 2019 2018 (AED millions) 29.142.1 1,346.0 115.8 1,185.9 14,349.1 23.1 46,161.8 26,716.2 1,494.4 217.4 1,257.2 13,703.7 23.5 43,412.4 26,120.8 1,334.5 217.0 1,612.6 12,941.6 126.4 42,353.0 As at 31 December 2017 22,934.2 1,208.2 244.5 1,897.3 13,178.2 287.7 39,750.2 The following table sets out the concentration of credit risk by economic activity sector in relation to the Group's financing receivables as at 30 June 2020, 31 December 2019, 31 December 2018 and 31 December 2017. As at 30 June 2020 Manufacturing ......................................................... Construction ............................................................ Trade ....................................................................... Transport and communication ................................. Services ................................................................... Sovereign ................................................................ Personal................................................................... Real estate ............................................................... Hotels and restaurants ............................................. Management of companies and enterprises ............. Financial institutions and investment companies..... Others ...................................................................... Total financing receivables ................................... 2,017.6 758.1 6,628.5 889.8 1,089.2 152.1 26,384.8 3,745.8 46.5 1,147.0 1,181.5 2,120.9 46,161.8 As at 31 As at 31 December December 2019 2018 (AED millions) 1,649.6 1,482.4 786.6 955.2 6,692.4 6,476.3 208.7 272.7 907.1 1,250.1 347.6 617.9 24,717.3 23,216.2 3,346.7 4,237.8 55.2 77.8 407.8 95.7 1,962.4 2,026.4 2,331.0 1,644.5 43,412.4 42,353.0 As at 31 December 2017 1,259.9 1,103.4 5,361.6 327,5 1,118.5 104.0 22,574.9 4,994.9 70.7 185.5 1,264.7 1,384.7 39,750.2 The following table summarises the movement in the Group's net financing receivables as at 30 June 2020, 31 December 2019, 31 December 2018 and 31 December 2017. As at 30 June 2020 Total financing receivables ..................................... Less: Deferred income............................................. Less: Expected credit loss........................................ Net financing receivables ...................................... As at 31 December 2019 46,161.8 (2,078.4) (3,731.6) 40, 351.8 43,412.4 (2,184.9) (3,730.9) 37,496.5 As at 31 As at 31 December December 2018 2017 (AED millions) 42,353.0 39,750.2 (2,198.3) (2,369.6) (3,982.8) (3,545.2) 36,171.9 33,835.4 The following table sets out the movement in the Group's ECL as at 30 June 2020, 31 December 2019, 31 December 2018 and 31 December 2017. As at 30 June 2020 Balance at 1 January (adjusted opening as per IFRS 9)1........... Allowances for impairment made during the year2................... Write-back/recoveries made during the year3 ........................... Amounts written-off during the year4 ....................................... Exchange and other adjustments .............................................. Closing balance ....................................................................... 3,730.9 664.3 (30.0) (633.6) ⎯ 3,731.6 - 87 - As at 31 As at 31 December December 2019 2018 (AED millions) 3,982.8 4,442.5 905.1 759.1 (253.5) (306.5) (837.4) (1,259.5) (66.0) 347.1 3,730.9 3,982.8 As at 31 December 2017 3,498.3 1,202.2 (475.0) (680.3) ⎯ 3,545.2
100. _______________ 1 2 3 4 Referred to as "Balance at 1 January" in H1 2020 Financial Statements. Referred to as "Expected credit losses recognised during the period" in H1 2020 Financial Statements. Referred to as "Write-back/recoveries made during the period" in H1 2020 Financial Statements. Referred to as "Amounts written off during the period" in H1 2020 Financial Statements. As at 31 December 2019, the contractual amount outstanding on financing receivables which were writtenoff during the year and were still subject to enforcement activity amounted to AED 837.0 million (31 December 2018: AED 1,259.0 million). Commitments and Contingent Liabilities The following table sets out the Group's commitments and contingent liabilities as at 30 June 2020, 31 December 2019, 31 December 2018 and 31 December 2017. As at 30 June 2020 Letters of credit .................................................... Guarantees............................................................ Liability on risk participations.............................. Irrevocable financing commitments ..................... Total .................................................................... 367.9 5,074.4 27.2 1,112.0 6,581.2 As at 31 As at 31 December 2019 December 2018 (AED millions) 225.8 580.6 5,085.5 5,111.1 36.7 9.5 1,486.8 962.8 6,834.9 6,664.0 As at 31 December 2017 909.6 5,821.0 120.0 3,713.0 10,563.6 Irrevocable financing commitments represent a contractual commitment to permit drawdowns on facilities granted by the Group. Such drawdowns may only be within a defined period and are subject to conditions precedent and termination clauses. Further, such commitments may expire without being drawn down. Accordingly, such aggregate contract amounts do not necessarily represent exact future cash requirements. As at 31 December 2019, the Group had a capital commitment of AED 24.9 million for branch refurbishments and automation projects (31 December 2018: AED 20.0 million). Related Party Transactions As at the date of this Base Prospectus, ENBD holds a 99.9 per cent. stake in Emirates Islamic. In turn, as at the date of this Base Prospectus, the Investment Corporation of Dubai holds a 55.75 per cent. stake in ENBD. The Investment Corporation of Dubai is wholly-owned by the Government. The Group enters into related party transactions with Government-related entities in the normal course of its business. The Group enters into such transactions on normal commercial terms. In addition, the Group also enters into transaction with other related parties who are not Government-related entities. The Group enters into such transactions on substantially the same terms, including profit rates and collaterals, as those prevailing at the same time for comparable transactions with third parties. As at 30 June 2020, the Group's financing and other receivables attributable to related parties amounted to AED 4.2 million while the Group's customers deposits and other payables from related parties amounted to AED 2,222.5 million. For further information, please see Note 17 to the H1 2020 Financial Statements. Recent Developments Impact of COVID-19 outbreak In 2020, the macro-economic environment (both globally and within the UAE) has also been materially affected by the COVID-19 outbreak. As at 30 June 2020, the Group has provided for an additional ECL due to increased downturn weighting of the macro-economic scenario resulting from the COVID-19 outbreak. However, the related estimates and judgments are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected and the impact could be significantly greater than currently envisaged by Emirates Islamic (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – The Group's business, results of operations, financial condition and prospects may be materially adversely affected by changes in the macro-economic environment following the COVID-19 outbreak" and "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – - 88 -
101. COVID-19 outbreak "). During 2020, Emirates Islamic has initiated a programme of payment relief to support its impacted customers by deferring profit/principal due to provide short-term liquidity to address customer cash flow issues. Additionally, Emirates Islamic have offered rescheduling solutions with reduced equated monthly instalments. Emirates Islamic continues to work closely with its customers to understand their evolving cash flow situations in order to continue to provide appropriate solutions. - 89 -
102. DESCRIPTION OF THE GROUP Overview Emirates Islamic , formerly known as Middle East Bank PJSC, was incorporated as a public limited company and conventional commercial bank by H.H. Sheikh Rashid bin Saeed Al Maktoum, the former Ruler of Dubai, pursuant to Emiri Decree dated 4 October 1975, as amended by Emiri Decree dated 3 April 1976 and, in 1991, was acquired by ENBD (at the time, Emirates Bank International PJSC) pursuant to an agreement dated 9 December 1991. Emirates Islamic was registered as a Public Joint Stock Company in July 1995 (Commercial Register No. 30 dated 18 July 1995). In 2004, in response to customer demand for Shari'a compliant products on a broader scale, Emirates Islamic was converted to an Islamic bank and its name was changed to "Emirates Islamic Bank PJSC" (a resolution was passed at an extraordinary general meeting of shareholders held on 10 March 2004 to convert Emirates Islamic's activities to be fully Shari'a compliant). The process was completed on 9 October 2004 when Emirates Islamic obtained the Central Bank's and other relevant UAE authorities' approvals. Through its 38 branches across the UAE (as at 30 June 2020), Emirates Islamic provides full Islamic banking services and a variety of products through Shari'a compliant financing and investment activities. As at 31 December 2019, Emirates Islamic was the third largest Islamic bank in the UAE by total assets (source: year-end 2019 consolidated financial statements for UAE banks). Emirates Islamic is a publicly listed company whose shares are listed on the Dubai Financial Market (the "DFM"). As at 30 June 2020, Emirates Islamic's authorised capital was AED 10.0 billion, consisting of 10 billion shares of AED 1 each. Emirates Islamic's paid-up capital, as at 30 June 2020, was AED 5.4 billion. As at 30 June 2020, Emirates Islamic was 99.9 per cent owned by ENBD. As at 30 June 2020, the Group had total assets of AED 64.2 billion (which included financing receivables of AED 40.4 billion), total deposits of AED 49.6 billion (comprising due to banks and customer deposits) and a total capital adequacy ratio of 20.01 per cent. For the six months ended 30 June 2020, the Group's net profit for the period was AED 11.8 million. Whilst the Group does have a strong degree of independence in the operation of its business, it enjoys a high level of support from ENBD and its subsidiaries (together, the "Holding Company Group") in relation to business support functions, including human resources, treasury, IT, certain administrative services and back-office operations such as clearing and remittances (see further "Description of the Group – Competitive Strengths – Support from the Holding Company Group"). In addition, Emirates Islamic's network of automated teller machines ("ATMs") is integrated with the network within the Holding Company Group. Emirates Islamic is also aligned to Holding Company Group policy and standards, to the extent not inconsistent with the rules and principles of Shari'a as per the standards of the Emirates Islamic Internal Shari'a Supervision Committee. All of Emirates Islamic's activities are overseen by the Internal Shari'a Supervision Committee comprising scholars of Islamic Shari'a (see further "Management and Employees – Board Committees – Internal Shari'a Supervision Committee"). General Emirates Islamic's registered office address is P.O. Box 6564, Dubai, United Arab Emirates. Emirates Islamic's head office is located on the 3rd Floor, Building 16, Dubai Health Care City, P.O. Box 6564, Dubai, United Arab Emirates. Emirates Islamic's general contact number is +971 4 316 0330. As at the date of this Base Prospectus, Emirates Islamic has been assigned a long-term foreign currency issuer default rating of A+ and a short-term foreign currency issuer default rating of F1 by Fitch. Ownership Structure As at the date of this Base Prospectus, ENBD holds a 99.9 per cent. stake in Emirates Islamic. In turn, as at the date of this Base Prospectus, the Investment Corporation of Dubai holds a 55.75 per cent. stake in ENBD. The Investment Corporation of Dubai is wholly-owned by the Government. ENBD was incorporated and registered in the UAE as a Public Joint Stock Company on 16 July 2007 and is a publicly listed company whose shares are listed on the DFM. ENBD is one of the largest banking entities in the UAE across a range of metrics, including by shareholders equity and by financing/loans as - 90 -
103. at 31 December 2019 (source: year-end 2019 financial statements for UAE banks). Originally incorporated to serve as the holding company of Emirates Bank International PJSC and National Bank of Dubai PJSC during the initial stages of their merger, on 21 November 2009, Emirates Bank International PJSC and National Bank of Dubai PJSC were legally amalgamated with ENBD. As a result of the amalgamation, all of the assets and liabilities of Emirates Bank International PJSC and National Bank of Dubai PJSC were transferred to ENBD and Emirates Bank International PJSC and National Bank of Dubai PJSC were dissolved. ENBD has a significant presence in the UAE retail, corporate and commercial banking market. ENBD (including through the operation of its operating subsidiaries) is one of the leading full-service banks in the UAE and has branches in Austria, Bahrain, Egypt, Germany, India, Turkey, Russia, the Kingdom of Saudi Arabia, Singapore and the United Kingdom and representative offices in China and Indonesia. The board of directors of ENBD is chaired by H.H. Sheikh Ahmed bin Saeed Al Maktoum, the Chairman of the Supreme Fiscal Committee of the Government and is composed of nine directors, who include each member of Emirates Islamic's board of directors except Mr. Shayne Nelson (who is the Group Chief Executive Officer of ENBD). The Investment Corporation of Dubai is wholly-owned by the Government and was established in May 2006, through the partial transfer of the Government's investment portfolio from the Department of Finance, pursuant to a decree issued by H.H. Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai. It is the only entity mandated to directly own and manage the Government's corporate assets. The aim of the Investment Corporation of Dubai is to assist in establishing the vision for Dubai through devising and implementing the Government's investment strategy and managing investments deemed to be of strategic importance to Dubai's long-term development goals. The investments, diversified across multiple sectors, are considered to be a platform for the future growth of Dubai and include Dubai's most recognised companies including but not limited to, in addition to ENBD, Borse Dubai Limited, Commercial Bank of Dubai PJSC, Dubai Aerospace Enterprise (DAE) Ltd, Dubai Aluminium PJSC, Dubai Cable Company (Private) Ltd, Dubai Islamic Bank PJSC, Emaar Properties PJSC, Emirates National Oil Company Limited (ENOC) LLC and The Emirates Group (including dnata). The board of directors of the Investment Corporation of Dubai is chaired by H.H. Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai and is composed of five directors, who include the Chairman of ENBD. Strategy Emirates Islamic's vision is to be the leading provider of high standard Shari'a compliant innovative financial products, quality value and superior value for its customers, shareholders, employees and community. In order to achieve its objective, Emirates Islamic implemented its three-year strategic vision programme in 2020 which is driven by: • business growth aspirations by driving sustainable growth, digital and analytics advancement and augmenting risk and returns; • focusing on customer experience across all business segments by building a solid customer experience foundation, enabling customer-centric journeys through end-to-end customer-centric processes and a "customer first" mindset; and • a human capital strategy to strengthen organisation culture, promote agility and empowerment to support Emirates Islamic's growth aspirations. As part of this broader strategic vision, Emirates Islamic intends to focus on the following key strategic pillars in the short- to mid-term. Drive Sustainable Growth Emirates Islamic seeks to deliver its financial growth aspirations through diversification of its revenue streams by enhancing its products and services propositions in order to increase share of wallet from customers and capture higher non-funded income growth. In order to achieve this, Emirates Islamic intends to focus on enhancing its Emirati customer eco-system and value proposition in order to capture a higher market share. For instance, Emirates Islamic has recently partnered with a number of housing programmes (such as the Sharjah Housing Programme, Sheikh Zayed Housing Programme and Mohammed Bin Rashid Housing Establishment) and government entities (such as the Roads and Transport authority and Dubai Police) to offer products and services specifically catering to UAE nationals. In 2017, Emirates Islamic launched the "Emirati Experience", which is an exclusive banking package for UAE nationals - 91 -
104. encompassing lifestyle privileges , fast service and pricing benefits. Emirates Islamic has also partnered with Emirati influencers to gain a strong brand affinity amongst Emiratis and, as a result, in 2019, Emirates Islamic was ranked fifth as a retail bank brand in the UAE (source: 2019 UAE Retail Banks, YouGov Brand Index). Further, according to internal management data, the financing portfolio (including card portfolio and micro-SMEs owned by Emiratis) attributable to Emirati customers increased by 15.8 per cent. between 2018 and 2019 while customer deposits attributable to Emirati customers increased by 8.8 per cent. during the same period. In addition, Emirates Islamic also aims to strengthen its origination and distribution capabilities in its Wholesale Banking division by, amongst other things, enhancing its transaction banking, financial institution and investment banking propositions, development of new treasury and markets products and services, introduction of digital foreign exchange dealing solutions and growth of its sukuk book. Digital and Analytics Advancement Emirates Islamic aims to continue to play a leading role within the Islamic banking sector by introducing state-of-the-art digital solutions through the launch of a digital bank proposition for its commercial and retail customers, enhancement of digital platforms for wholesale and commercial customers as well as upgrade of its core banking, data and analytics systems. Emirates Islamic will also focus on redefining customer experience in branches by rolling out video-based interactive teller machines and digital branches as well as investing in end-to-end digital sales and services infrastructure. In 2019, Emirates Islamic launched its first teller-less branch in Mirdiff City Center in Dubai. This branch caters to customers' cashrelated and other transactions through a virtual teller which can be accessed through interactive teller machines installed at the branch. During the same year, Emirates Islamic also launched its "Chat Banking" services via WhatsApp and partnered with emaratech (a subsidiary of the Investment Corporation of Dubai) to enable individuals and businesses to make electronic payments for a range of government services via the noqodi payment gateway. Customer Centricity A focus on customer experience is at the core of Emirates Islamic's strategy. Emirates Islamic is continuously working on re-engineering its key processes, improving critical customer journeys, and instilling a "customer first" mindset among its people in its effort to deliver the best-in-class customer journey for its customers. Emirates Islamic seeks to implement this through a number of initiatives such as enhanced data quality and controls to eliminate back-office errors (a "first time right" approach), end-toend processes with clear procedures and updates to customers, automation of service requests and utilising customer satisfaction as a key performance indicator across the organisation. Smart Risk Management Emirates Islamic continues to strengthen its control framework and reinforce strong standards of governance by proactive risk policy management, setting up market-leading risk and control infrastructure and practices and implementation of a risk-aware culture across the organisation. For instance, the Group has implemented an internal risk "datamart" as a single source of information for providing more robust information and more efficient overview of the various financing relationships of a customer within the Group. Similarly, the Group has implemented early warning and credit monitoring systems to closely monitor stressed accounts. Enhance Human Capital Strength Emirates Islamic considers its people as its strongest asset. Emirates Islamic will continue to strengthen organisational culture, promote agility and empowerment, invest in up-skilling of its staff, redesign organisation structure, roles and responsibilities, and invest in human capital tools that will support its strategic aspirations. Emirates Islamic remains committed to supporting the Central Bank's "Emiratisation" policy through various initiatives to increase Emirati participation in critical roles within the organisation (see further "Management and Employees – Employees"). In addition to the focus on its strategic agendas, Emirates Islamic has always endeavoured to support the community and those in need. As part of Emirates Islamic's commitment to the community, the Emirates Islamic Charity Fund provides financial aid to those in need, with a focus on food, shelter, health, education - 92 -
105. and social welfare contributions . In 2019, the Group contributed AED 72.8 million through the Emirates Islamic Charity Fund. Competitive Strengths Emirates Islamic enjoys a number of key competitive strengths, including the following: Support from the Holding Company Group Although Emirates Islamic is a separate legal and operating entity which has a great degree of autonomy in respect of its business, it also enjoys a high level of support from the Holding Company Group in relation to many support functions including human resources, IT, certain administrative services and back-office operations such as clearing and remittances. For instance, Emirates Islamic utilises the services of its sister companies in the Holding Company Group such as Tanfeeth LLC, a subsidiary of ENBD, which handles, amongst other things, Emirates Islamic's call centre and various back-office functions such as clearing, payment and remittance processing. Diversified Distribution Channels Emirates Islamic is able to distribute its products through a variety of channels, which include its network of branches, ATMs and smart deposit machines ("SDMs"), a direct sales force, the internet, phone and mobile banking and a call centre. In 2019, Emirates Islamic launched its first teller-less branch in Mirdiff City Center in Dubai. Emirates Islamic has accounts with a diverse client base, which in turn creates opportunities to cross-sell its other products and services such as car and home financing facilities (see further "Description of the Group – Business of the Group"). Service Quality Emirates Islamic considers service quality and quick response time to be the key differentiators in maintaining client and customer satisfaction and loyalty. To this end, Emirates Islamic's employees are trained in client service techniques and new product and market developments. Emirates Islamic ensures continuous monitoring and improvement of customer services through a customer service working committee which meets monthly to monitor the implementation of various strategic initiatives designed to ensure continuous improvement of its service quality. As part of Emirates Islamic's commitment to customer service, it has appointed an independent service provider for reaching out to Emirates Islamic's growing customer base with a customer satisfaction survey. In recognition of its focus on customer excellence, robust performance, and innovation in Islamic banking, Emirates Islamic was named "Best Islamic Financial Institution in UAE 2020" in the Global Finance Magazine's list of the "World's Best Islamic Financial Institutions" and was awarded "Best Islamic Bank, UAE" at the World Finance Awards 2019 as well as "Best Islamic Bank" at the Global Islamic Finance Awards 2019. Ability to Innovate Emirates Islamic has in the past benefited from various first-mover advantage through provision of unique and innovative products and service (see further "Description of the Group – Business of the Group – Consumer Banking and Wealth Management"). In recent years, Emirates Islamic has been looking at innovative products as well as digital and analytics advancement to deliver existing products and services more efficiently (see further "Description of the Group – Strategy – Digital and Analytics Advancement"). In recognition of its commitment to digital transformation and innovation, Emirates Islamic was named "Most Innovative Islamic Retail Bank in the UAE" and awarded "Excellence in Digital Banking" at the 5th Islamic Retail Banking Awards 2019. In 2019, Emirates Islamic was also awarded "Best Digital Banking Proposition" by the Islamic Business and Finance Magazine and "Most Improved Website" at the Service Olympian Awards. Shari'a Compliance Standards Emirates Islamic strives for Shari'a compliance by offering all its products and services in strict conformity with the Shari'a supervision parameters approved by its Internal Shari'a Supervision Committee (see further "Management and Employees – Board Committees – Internal Shari'a Supervision Committee"). To this end, Emirates Islamic has established an internal Shari'a control department that supports the fatwa, audit and supervisory functions of the Internal Shari'a Supervision Committee. The Shari'a department is staffed with suitably skilled employees who ensure that Shari'a rules and principles are applied to all new - 93 -
106. products and services . This helps to ensure that Emirates Islamic's reputation as a premier Islamic bank is maintained. Experienced and Committed Management Emirates Islamic aims at a high employee retention rate and a high proportion of Emirates Islamic's senior management team has been "home-grown" within the Holding Company Group. In addition, most of the senior management has many years of experience with international and UAE banks (see further "Management and Employees"). Comprehensive Human Capital Management Emirates Islamic considers its people as one of its most valuable resources. The Group's human resources department adopts a holistic approach in attracting, retaining, developing and engaging all of the Group's employees. In particular, a dedicated diversity and inclusion function has been established within the Group's human resources department to ensure continuous focus within the Group on creating an inclusive environment. Further, the learning and development function within the Group's human resources department focuses on providing comprehensive training to the Group's employees. For instance, the "Kuwwati" training programme supports the development of leadership capabilities of Emirati women in the Group while the "National Achievers Strategic Academy" is an accelerated comprehensive development programme for university graduates joining the Group. Emirates Islamic believes that the continuous efforts and developmental programmes provided over the past years by Emirates Islamic have contributed to the high level of skill in the industry and have contributed to Emirates Islamic being seen as an industry leader (see further "Management and Employees – Employees – Learning and Development"). Strong IT Base Emirates Islamic is focused on utilising the most advanced IT systems to secure the accounts of its customers and ensure that customers' data is well protected and secured against unauthorised access. Emirates Islamic also envisages the role of IT to be significant in ensuring that Emirates Islamic remains responsive and flexible to the competitive and dynamic forces of the environment within which it operates. Accordingly, Emirates Islamic continues to invest in IT to ensure that it is resourced in line with modern banking requirements. The mainframe of the IT system is centralised at the Holding Company Group level. Emirates Islamic regularly undertakes business process automation, consolidation of IT assets and continuous replacement of obsolete and redundant IT systems to ensure that Emirates Islamic's IT support infrastructure functions in an operationally productive and cost-efficient environment. Emirates Islamic's IT investment strategy is focused on continuously improving the cost efficiency and the quality of the services that Emirates Islamic provides to its customers. Emirates Islamic is in the process of upgrading its core banking IT system to have a single platform across the Holding Company Group. Emirates Islamic has also implemented an end-to-end digital sourcing solution for front-end consumer banking which employs workflow technology with more robust control in respect of the various work-steps in Islamic finance processing and uses digital imaging technology to reduce the delays and inefficiencies in handling paper documents. Links with the Community Emirates Islamic's philosophy has been to maintain strong links with the local community and it intends to continue to promote the positive development of society in the UAE. Emirates Islamic sees this as an important feature in maintaining its position as a premier Islamic bank. For example, it has been active in promoting Emiratisation and employing and training UAE nationals with a view to encouraging them to participate in and enhance the economy of the UAE. Emirates Islamic enjoys one of the highest Emiratisation levels in the UAE banking sector due to its innovative initiatives in attracting UAE nationals into the industry and as at 30 June 2020, 20.2 per cent. of Emirates Islamic's total employees were UAE nationals. Of these, 27.0 per cent. of such UAE nationals are in leadership and managerial roles across the Group. Over 75 per cent. of the Executive Committee (see "Management and Employees – Board Committees") members are UAE nationals and three of the members are Emirati women. Emirates Islamic's target is to further increase the Emirati representation in the mid to senior levels of its workforce. Emirates Islamic offers sponsorship contracts to Emirati university students - 94 -
107. who are allocated mentors to train them until the date of their graduation , whereupon they are hired by Emirates Islamic on a permanent basis. Emirates Islamic also hires UAE nationals with differing levels of education as trainees. Such trainees are trained in different departments and branches and attend training courses to improve their skills. Following the completion of the training period, these UAE national trainees are deployed into Emirates Islamic's different departments. As a consistent champion of Emiratisation in the banking sector, Emirates Islamic was the recipient of the "Human Resources Development" award in 2019 by the Emirates Institute for Banking and Financial Studies. Emirates Islamic is also the "Official Islamic Banking Partner" for Expo 2021 Dubai. Competition In respect of its consumer banking and corporate banking divisions, Emirates Islamic's principal competitors include both banks that are locally incorporated (conventional and Islamic) as well as certain foreign banks operating in the UAE. The UAE could be viewed as an over-banked market, even by regional standards. As at 31 March 2020, 48 commercial banks (comprising 21 local banks and 27 foreign commercial banks) operated in the UAE (source: Statistical Bulletin March 2020 (preliminary data), Central Bank), serving a population estimated to be in the region of 9.7 million in mid-2019 (source: Statistical Yearbook 2019 edition, United Nations Department of Economic and Social Affairs – Statistics Division). Emirates Islamic's key competitors are Abu Dhabi Islamic Bank PJSC, Dubai Islamic Bank PJSC and Sharjah Islamic Bank PJSC in the Islamic banking sector as well as conventional banks such as Commercial Bank of Dubai PJSC, Mashreqbank psc and National Bank of Ras Al Khaimah PJSC (RAKBank), all of which are incorporated in the UAE (see further "The United Arab Emirates Banking Sector and Regulations – Characteristics of the Banking System – Historic lack of consolidation"). Emirates Islamic's direct competitors also include those international banks which provide Islamic services, as well as the Islamic windows of various domestic and international banks. Emirates Islamic believes that Islamic banking is one of the fastest growing sectors in the finance industry and that it can continue to capitalise on its experience in the Islamic banking sector to participate in this growth and increase its market share. Business of the Group Business Segments For financial reporting purposes, the Group's business activities are comprised of the following segments: • corporate banking – represents the Group's products and services to corporates. As at and for the six months ended 30 June 2020, the corporate banking segment accounted for 30.0 per cent. of the Group's total assets for the period; • consumer banking – represents the Group's products and services to individuals and SMEs. As at and for the six months ended 30 June 2020, the consumer banking segment accounted for 40.8 per cent. of the Group's total assets for the period; • treasury – represents treasury activities of the Group such as managing the Group's portfolio of investments, funds management, interbank treasury operations and brokerage services. As at and for the six months ended 30 June 2020, the treasury segment accounted for 23.5 per cent. of the Group's total assets for the period; and • others – represents the Group's operations and support functions. For operations management purposes, the Group's activities are principally comprised of the following divisions: • Consumer Banking and Wealth Management division – represents the Group's retail financing and deposits, commercial banking for SMEs, priority banking and wealth management operations; • Wholesale Banking division – represents the Group's corporate banking, financial institutions, and structured finance and syndication operations; and • Treasury and Markets division – represents the Group's treasury and markets operations. - 95 -
108. Consumer Banking and Wealth Management Emirates Islamic 's Consumer Banking and Wealth Management division ("CBWM") offers a complete range of Shari'a compliant retail and personal banking products and services (as detailed below) through its various distribution channels. In its wide-ranging offerings designed to meet the varied needs of its CBWM customers, Emirates Islamic has been at the forefront of innovation in its retail operations, including being: • the first bank in the UAE to introduce a Shari'a compliant co-branded credit card in association with Emirates airline, with its "Skywards EIB" credit card (in 2008), as well as the first Dubaibased bank to introduce a co-branded credit card with Etihad Airways (in 2019); • the first Islamic bank in the UAE to offer a mobile banking application ("mobile app") (in 2014). As at the date of this Base Prospectus, this mobile app offers over 250 services to customers; • the first Islamic bank in the UAE to offer all three digital wallets (Apple Pay, Google Pay and Samsung Pay) to its customers (in 2019); • the first Islamic bank in the world to offer "Chat Banking" services via WhatsApp (in 2019); and • the first Islamic bank in the UAE to offer dynamic currency conversion for visitors to the UAE using a non-UAE Visa card (in 2019). When making cash withdrawals using their Visa card at any Emirates Islamic ATM across the UAE, such customers will be able to view the exact conversion amount and fees in their home currency before making a cash withdrawal. Emirates Islamic aims to support these products and services with dedicated and quality customer service. According to internal management data, the CBWM division accounted for 80.0 per cent. of the Group's total operating income for the six months ended 30 June 2020 (exhibiting an increase of 9.0 per cent. compared to the six months ended 30 June 2019). Products and services Emirates Islamic's principal CBWM products and services include the following: • priority banking – an exclusive service designed to meet the needs of affluent individuals. Priority banking customers enjoy personalised services and a wide range of benefits including dedicated relationship managers, priority centres, preferential pricing and a range of Shari'a compliant wealth management products; • business banking – Emirates Islamic provides banking services to SMEs (identified in accordance with Central Bank guidelines), including financing, trade finance, foreign exchange and liabilities and cash management solutions with dedicated relationship managers and hubs within the branch network; • current accounts – these accounts are transactional accounts with a checking option and debit card, online and phone banking facilities; • savings accounts – various savings accounts that provide profits, prizes and other value added services targeted at various customer segments; • investment time deposit accounts – these are accounts structured under the principles of mudaraba investment and offered in a variety of tenors ranging from three months to two years; • debit cards – VISA debit cards; • credit cards – Shari'a compliant VISA credit cards in various categories including platinum, gold, classic and the "Skywards EIB" credit card; • Manzili home finance – providing Shari'a compliant home financing for purchase, transfer and cash release on freehold properties; - 96 -
109. • BINA home finance – providing home financing to UAE nationals in respect of properties in areas eligible for purchase by UAE nationals only; • auto finance – car financing (for new and used vehicles) based on murabaha financing. This also covers fleet and light, medium and heavy commercial vehicles; and • personal finance – financing for a variety of personal needs in the form of investment murabaha, goods murabaha and service ijara. Distribution channels The CBWM division offers its products and services through its branches, ATMs and SDMs as well as through internet, phone and mobile banking. As at 30 June 2020: • branches – Emirates Islamic operated a network of 38 branches located throughout the UAE, comprising 22 branches in Dubai, 6 branches in Abu Dhabi and Al Ain, 7 branches in Sharjah and 3 branches in the remaining Emirates; • ATMs and SDMs – Emirates Islamic operated a total of 179 ATMs and SDMs. Emirates Islamic's customers are also able to use ENBD's ATMs and SDMs for no additional fees which gives Emirates Islamic's customers access to a network of over 800 ATMs and SDMs across the UAE as at 30 June 2020. Emirates Islamic's customers can also use any ATM in the UAE through the "UAE Switch network" for a small fee for every withdrawal; and • electronic banking – Emirates Islamic provides extensive electronic banking options to its customers including internet banking, phone banking and mobile banking (through SMS, mobile app and WhatsApp). Emirates Islamic's internet, phone and mobile banking technology platform is provided by the Holding Company Group and therefore Emirates Islamic has the benefit of a well-developed system that is tried, tested and resourced at the Holding Company Group level. Wholesale Banking Emirates Islamic's Wholesale Banking division provides a full-fledged value proposition consisting of working capital finance, trade finance, project finance, syndicate and structured finance, cash management and treasury services to large and mid-sized corporates, financial institutions, sovereigns and governmentrelated entities. According to internal management data, the Wholesale Banking division (excluding the Treasury and Markets division) accounted for 19.4 per cent. of the Group's total operating income for the six months ended 30 June 2020 (exhibiting an increase of 4.0 per cent. compared to the six months ended 30 June 2019). The Wholesale Banking division is segmented into three key business units, namely corporate banking, structured finance and syndication and financial institutions. In addition, operationally, Emirates Islamic's Treasury and Markets division forms part of the Wholesale Banking division as well. Corporate banking Emirates Islamic is a leading player in the corporate banking segment in the UAE, offering customised Shari'a compliant financial solutions to cater to its clients' requirements. The corporate banking unit consists of specialist teams that deliver industry insight and tailored financial solutions to their large and mid-sized corporate clients. These solutions cover a wide suite of financial products and services, including: • financing solutions – provision of short-term financing solutions to meet a client's working capital requirements (which includes procurement of raw materials, parts, supplies and other inventory assets) as well as long-term financing solutions to facilitate capital expenditure and expansion requirements of clients' businesses (which include among others, acquisition of property, plant and machinery and contract/project financing); • trade and supply chain solutions – provision of a comprehensive product suite designed to meet business requirements pertaining to imports, exports and guarantee issuance to support both local and global business requirements; and - 97 -
110. • transaction banking – provision of full-fledge cash management solutions via an electronic banking platform to facilitate customers' payments, collections and liquidity management in an efficient manner. The above products and services are provided through Shari'a compliant structures including murabaha, ijara, istisna'a, musharaka and mudaraba. Emirates Islamic's corporate banking customers consist of private sector customers, public sector customers and government bodies/agencies that operate in trade, manufacturing, real estate and other industries. Structured finance and syndication Emirates Islamic's structured finance and syndication unit provides bespoke structured financing and syndication financing solutions to customers. The unit also provides fee based services in the roles of arranger, investment agent, security agent and paying agent to Emirates Islamic's clients on syndications and sukuk financing transactions. Subject to credit and Shari'a approval, Emirates Islamic's structured finance and syndication unit has the discretion to enter into a wide range of financing and investment opportunities and is often approached with a variety of external proposals. Financial institutions The financial institutions unit manages Emirates Islamic's overall relationships with financial institutions. Its principal functions include management of Emirates Islamic's sovereign and financial institutions limits and exposures, marketing of Emirates Islamic's products and services to financial institutions across the globe, facilitation of fund raising initiatives through sourcing of bilateral, club and market funding, management of Emirates Islamic's correspondent banking relationships. Treasury and Markets Emirates Islamic's Treasury and Markets division offers a wide range of products and services to both corporate and individual clients, including foreign exchange products and services in the UAE for domestic, GCC and G10 currencies as well as multi-asset structuring and execution services. According to internal management data, the Treasury and Markets division accounted for 6.0 per cent. of the Group's total operating income for the six months ended 30 June 2020 (exhibiting a decrease of 16.0 per cent. compared to the six months ended 30 June 2019). The Treasury and Markets division is segmented into four "desks", namely, sales and structuring, flow and execution, asset liability management and business management support. The key functions of these desks are: • sales and structuring – this desk offers an extensive suite of products that caters to Emirates Islamic's wholesale banking, wealth management and retail client needs. The desk's coverage spans various asset classes with a special focus on foreign exchange and profit rate vanilla hedging although the desk also provides a wide range of derivative products specific to client requirements as well as execution capability in respect of international and domestic sukuks and equities in accordance with the rules and principles of Shari'a; • flow and execution – this desk provides execution services to clients in relation to multiple Shari'a approved asset classes such as foreign exchange, banknotes, equities, sukuk, third party funds and third party structured notes; • asset liability management – this desk manages the Group's liquidity and foreign exchange position in accordance with the Group's risk management framework (see "Description of the Group – Risk Management"). This desk also manages the Group's nostros and interbank short to medium term funding and sukuk banking book and monitors and Group's regulatory requirements; and • business management support – this desk performs a number of internal governance functions such as operational management of the Programme as well as policies, procedures, documentation and systems utilised by the Treasury and Markets division. - 98 -
111. In addition , the Treasury and Markets division is responsible for Emirates Islamic's overall long-term and short-term liquidity, guided by the overriding principle of prudent liquidity management in accordance with the policy set by the Holding Company Group and Emirates Islamic's Assets and Liabilities Committee ("ALCO") (see further "Management and Employees – Board and Management Committees – Assets and Liabilities Committee"). The majority of Emirates Islamic's funding is provided by customer deposits and the interbank market is used for residual funding purposes. To mitigate future liquidity risks (for instance, risks associated with market events), the Treasury and Markets division adopts the Holding Company Group's liquidity buffer policy, which is designed to be of a size sufficient to deal with all foreseeable liquidity events. Subsidiaries As at 30 June 2020, Emirates Islamic had the following subsidiaries: • EI Funding Limited – EI Funding Limited ("EIFL") was established in May 2014 and is 100 per cent. owned by Emirates Islamic. EIFL is a special purpose vehicle incorporated under the laws of the Cayman Islands and its principal activities comprise purchasing a portfolio of assets from Emirates Islamic through the issuance of certain liquidity instruments as consideration for such portfolio. These instruments are traded through an in-house platform; • EI Sukuk Company Limited – the Trustee was established in June 2007 and is a Cayman Islands exempted company with limited liability. All of the issued share capital of the Trustee is held by the Share Trustee (see further "Description of the Trustee"). However, for financial reporting purposes, the Trustee is consolidated as a "special purpose entity" subsidiary of Emirates Islamic (see also Note 7(a)(ii) to the 2019 Financial Statements); and • Emirates Islamic Financial Brokerage – Emirates Islamic Financial Brokerage ("EIFB") was established in April 2006 and is 100 per cent. owned by Emirates Islamic. EIFB provides Shari'a compliant brokerage services to investors in the local stock markets which includes both the Abu Dhabi Securities Market ("ADX") and the DFM. EIFB offers customers the opportunity to trade shares through dedicated brokers as well as online trading. EIFB offers a competitive fee structure, dedicated brokers, customer service representatives and trading rooms for high net worth individuals. Risk Management The activities of the Group require continuous management of particular risks or combinations of risks. Risk management is the identification, analysis, evaluation and management of the factors that could adversely affect the Group's resources, operations and financial results. The main risk factors that affect the Group are market, liquidity, credit, operational and reputational risks. Emirates Islamic aims to manage the Group's exposure to these risks conservatively. For further information, please see Note 36 to the 2019 Financial Statements. Risk Management Framework Risk is managed proactively across the Group through a framework of principles, standards, policies, organisational structures, approval authorities, measurement, monitoring and control processes which incorporates well-defined risk identification, measurement and monitoring processes. This risk management framework is intended to ensure that major risks that could adversely affect the Group's resources, operations and financial results are identified, measured, aggregated, monitored and managed effectively. The Group operates a three-line defence risk management model wherein front office functions, support functions, risk management oversight and assurance roles are undertaken by functions that are independent of one another. Business units are the first line of defence and are responsible and accountable for on-going risk management that includes identifying, assessing and reporting such exposures, taking into account the Group's risk appetite and its policies and procedures and controls. Control units within business units, the risk management function and the compliance function are the - 99 -
112. second line of defence . These functions complement the business lines' risk activities through their monitoring and reporting responsibilities. Among other things, these functions are responsible for overseeing the Group's risk-taking activities and assessing risks and issues independently from the relevant business line. The internal audit function is the third line of defence. Among other things, the independent internal audit function provides an impartial review and objective assurance on the quality and effectiveness of the Group's internal control system, the first and second lines of defence and the risk governance framework (see further "Description of the Group – Risk Management – Legal and Internal Audit – Internal audit"). Risk Governance The risk governance structure of the Group ensures central oversight and control with clear accountability for and ownership of risk. The Board has the ultimate responsibility for setting the Group's risk appetite and for the establishment and oversight of the risk management framework. The Board is assisted by a number of board committees such as the Board Risk Committee (the "BRC"), the Board Audit Committee (the "BAC"), the Board Credit and Investment Committee (the "BCIC"), the Group's Executive Committee (the "EXCO"), the Management Credit Committee (the "MCC"), the Holding Company Group Risk Committee (the "GRC"), the ALCO and the Internal Shari'a Supervision Committee (see further "Management and Employees – Board and Management Committees") which, in turn, are assisted by the respective business and risk control units. On a day-to-day basis, the risk management framework is management by the Group's risk management function ("Group Risk"), headed by the Chief Risk Officer. The Chief Risk Officer of the Holding Company Group has overall oversight of Group Risk. Group Risk is independent of the other business units and functions to ensure that the necessary balance in risk/return decisions is not compromised by pressures for better results in terms of revenues and to ensure transparency of decisions in accordance with the Group's standards and policies. Group Risk's primary role is to: • ensure the risk management framework is effectively communicated and implemented across the Group and is appropriate to the Group's activities; • exercise direct ownership for various risk types including but not limited to market, country, liquidity, credit, operational and reputational risks • ensure that the Group's business strategies, risk policies, procedures and methodologies are consistent with the Group's risk appetite; • ensure the integrity of the Group's risk/return decisions guaranteeing their transparency; and • ensure that appropriate risk management architecture and systems are developed and implemented. Group Risk operates within the overall ambit of regulations governed by the Central Bank, in compliance with standards and guidelines issued by the Internal Shari'a Supervision Committee and in alignment with the Group's risk governance and risk management framework, the Group's strategy and the Board-approved risk appetite statement. The Group's risk appetite statement is an articulation of the risk that the Group would be willing to accept, underwrite and/or be exposed to in the normal course of its business conduct. It is a mechanism used by the Group to proactively establish and subsequently monitor the Group's risk profile using a set of predefined key risk metrics and respective thresholds. Market and Treasury Credit Risk The Group is exposed to market and treasury credit risk from its client servicing and balance sheet management activities. Consistent with the Group's approach to strict compliance with Shari'a rules and principles, the Group does not involve in speculative foreign exchange transactions. Accordingly, the principal factors affecting the Group's market risk exposure are equity risk, duration risk and credit spread risk. The Group's market risk is managed through risk limits sub-delegated by the Holding Company Group (i.e., - 100 -
113. the limits are approved for the Holding Company Group (including for the Group) by the Holding Company Group's assets and liabilities committee and sub-delegated to the Group's Treasury and Markets division). Liquidity Risk The Group is exposed to liquidity risk due to mismatches in the amount and timings of cash flows. The Group is exposed to liquidity risk through: (i) funding liquidity risk which is the risk that the Group will not be able to efficiently meet both expected and unexpected current and future cash flow and collateral needs without affecting either daily operations or the financial condition of the Group; and (ii) market liquidity risk which is the risk that the Group cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption. The Group's liquidity risk is managed through its liquidity and funding management framework. The liquidity and funding management process includes: • mis-match analysis between assets and liabilities for different periods with a focus on shorter time frames. These gap reports are based on contractual cash flow, retention and decay assumptions for non-maturing assets and liabilities and potential liquidity demand through undrawn commitments; • monitoring balance sheet liquidity and financing receivables to deposits ratios against internal and regulatory requirements; • maintaining a diverse range of funding sources with back-up facilities; • projecting cash flows under various stress scenarios and considering the level of liquid assets necessary in relation thereto; • maintaining financing plans; • monitoring customer depositor concentration in order to avoid undue reliance on large individual depositors and ensure a satisfactory overall funding mix; and • maintaining liquidity and funding contingency plans. These plans identify early indicators of distress conditions and describe actions to be taken in the event of difficulties arising from systemic or other crisis, while minimising adverse long-term implications for the business. The Group maintains a diversified funding base comprising core consumer and corporate customer deposits and institutional balances. This is augmented with wholesale funding and portfolios of highly liquid assets diversified by currency and maturity which are held to enable the Group to respond quickly and smoothly to unforeseen liquidity requirements. Credit Risk The Group is exposed to credit risk mainly from commercial and consumer financing receivables, and financing commitments arising from such financing and interbank activities. Credit risk can also arise from credit enhancement provided, such as Shari'a compliant credit derivatives (Shari'a compliant credit default swaps), financial guarantees, letter of credit, endorsement and acceptances. The Group is also exposed to other credit risks arising from investments in financing securities and other exposures arising from its trading activities (trading exposures) including non-equity trading portfolio assets and Shari'a compliant derivatives as well as settlement balances with market counterparties and reverse repurchase agreements. The Group's credit policy focuses on core credit principles, financing guidelines and parameters, control and monitoring requirements, identification and management of high risk counterparties and provisioning. Standard procedures specific to businesses have been established to manage various types of risks across different business segments, products and portfolios. Portfolio performance is periodically measured against parameters set out in the risk appetite statement and breaches if any are presented to the MCC for actioning and resolution. Credit risk measurement and grading The estimation of credit risk for risk management purpose is complex and requires use of models, as the exposure varies with changes in market conditions, credit worthiness of the counterparties, expected - 101 -
114. changes in expected cash inflows and the passage of time . The assessment of credit risk of a portfolio of assets entails prospects of a recovery post the obligor going into default. The Group's credit risk strategy is focused on credit risk quantification using probability of default, exposure at default and loss given default (similar to the approach used for measuring ECL under IFRS 9) and credit risk management using various limits on concentration thresholds and credit risk mitigation by imposing credit covenants and collateral requirements on the obligors. The Group uses internal credit risk grading that reflects its assessment of the probability of default of individual counterparties. Obligor and financing receivable specific information collected at the time of application and at the time of each renewal, such as disposable income and level of collateral and turnover and industry type considerations is used as an input for the model. The credit grades are calibrated, such that the risk of default increases exponentially at each higher risk grade. For example, the difference in the probability of default between a 1A and 2A rating grade is lower than the difference in the probability of default between a 3A and 4A rating grade. The Group's rating method comprises four rating grades for instruments not in default (1 to 4) and one rating grade (5) which is considered to be in default. Each rating grade is further broken down into five notches (a to e) to ensure sufficient granularity and credit differentiation. The Group's internal rating scale is also mapped with rating scales published by external rating agencies. The master scale assigns each rating category a specified range of probabilities of default, which is expected to be stable over time. The rating models are reviewed for re-calibration so that they reflect the latest projections in the light of all actually observed defaults. For measuring impairment, the Group follows the IFRS 9 "three-stage" model for impairment which is based on changes in credit quality since initial recognition as set out below: • Stage 1 – stage 1 includes financial instruments that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date. For these assets, a 12-month ECL is recognised and profit revenue is calculated on the gross carrying amount of the asset (that is, without deduction for credit allowance). 12-month ECL are the expected credit losses that result from default events that are possible within 12 months after the reporting date. It is not the expected cash shortfalls over the 12-month period but the entire credit loss on an asset weighted by the probability that the loss will occur in the next 12 months; • Stage 2 – stage 2 includes financial instruments that have had a significant increase in credit risk since initial recognition (unless they have low credit risk at the reporting date) but that do not have objective evidence of impairment. For these assets, lifetime ECL are recognised but profit revenue is still calculated on the gross carrying amount of the asset. Lifetime ECL are the expected credit losses that result from all possible default events over the expected life of the financial instrument. Expected credit losses are the weighted average credit losses with the probability of default as the weight; and • Stage 3 – stage 3 includes financial assets that have objective evidence of impairment at the reporting date. For these assets, lifetime ECL are recognised and profit revenue is calculated on the net carrying amount (that is, net of credit allowance). Lifetime ECL is the ECL that result from all possible default events over the expected life of a financial instrument. The 12 month ECL is the portion of lifetime ECL that result from default events that are possible within the 12 months after the reporting date. Both lifetime ECLs and 12 month ECLs are calculated either on an individual basis or on a collective basis depending on the nature of the underlying portfolio of financial instruments and are measured after reviewing forward-looking information. Credit risk management In respect of consumer banking credit risk management, the Group has a structured management framework which enables the Group to identify and evaluate the significance of all credit risks that the Group faces, which may have an adverse material impact on its financial position. In the consumer banking portfolio, losses stem from outright default due to inability or unwillingness of a customer to meet commitments in relation to funding transactions. The Group's provisioning policy, which is in line with the IFRS and applicable regulatory guidelines, allows the Group to prudently recognise impairment on its retail portfolios. - 102 -
115. In respect of wholesale banking credit risk management , credit facilities are granted based on the detailed credit risk assessment of the counterparty. The assessment considers amongst other things the purpose of the facility, sources of re-payment, prevailing and potential macro-economic factors, industry trends as well as customers' credit worthiness and standing within the industry. The credit facility administration process is undertaken by an independent function to ensure proper execution of all credit approvals, maintenance of documentation and proactive controls over maturities, expiry of limits and collaterals while operations are managed by independent units responsible for processing transactions in line with credit approvals and standard operating guidelines. The Group also has well-defined process for identification of and effectively dealing with early alert, watch list and impaired non-performing financing receivables. Overall, the Group operates within prudential exposure ceilings set by the Board in line with applicable Central Bank guidelines. There are well laid out processes for exception management and escalation. The Group has adopted measures to diversify the exposures to various sectors. Diversification is achieved by limiting concentration through setting customer, industry and geographical limits. Risk transfer in the form of syndicated financings, risk participation agreements with other banks, Shari'a compliant credit default swaps and sale of financings (in a Shari'a compliant manner) are globally accepted practices followed by the Group, where appropriate, to limit its exposure. Similarly, collaterals and guarantees are effectively used as mitigating tools by the Group, when necessary. Credit-impaired assets and write-offs The Group defines a financial instrument as in default, which is fully aligned with definition of creditimpaired, when it meets one or more of the following criteria: • quantitative criteria – the obligor is more than 90 days past due on its contractual payments; or • qualitative criteria – the obligor meets the unlikeliness to pay criteria, which indicates that the obligor is in significant financial difficulty. These are instances like long-term forbearance, insolvency, bankruptcy etc. Financing and investment securities in wholesale banking are written-off (either partially or in full) when there is no realistic prospect of recovery. This is generally the case when the Group has exhausted all legal and remedial efforts to recover from the customers. However, financial assets that are written-off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due. Non-performing consumer financing, except for mortgage facilities and home financing, are written-off at 181 days past due. All receivables remain active on the finance management system for recovery and any legal strategy the Group may deem fit to use. Financial Remedial and Restructuring The financial remedial and restructuring function (the "FRR") reports directly into the Chief Risk Officer and is an additional line of defence for the Group. The FRR specialises in the restructuring and renegotiation of facilities to mitigate potential losses and is responsible for the management of high risk customers including all non-performing accounts. The FRR works closely with the relevant stakeholders (including direct contact with the counterparty) to find solutions. As a last resort, the FRR also initiates and manages the recovery of outstanding facilities through various means, including via litigation and debt collection agencies. The FRR also oversees the write-back of any recovered amounts and the write-off of balances where recovery was unsuccessful. The FRR is a part of the early alert committee and therefore has full visibility on potential high-risk customers. The FRR meets monthly and, as part of these meetings, senior management of the Group is apprised of and provides feedback on recent developments in the FRR portfolio. Capital Adequacy The Group's total capital is calculated on the basis of the Basel III framework of the Basel Committee on Banking Supervision (the "Basel Committee") as prescribed by the Central Bank. For further information, please see "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking" and Note 35 to the 2019 Financial Statements. - 103 -
116. The tiered components of the Group 's regulatory capital comprise of: • Common Equity Tier 1 (CET1) – CET1 capital is the highest quality form of capital, comprising share capital, share premium, legal, statutory and other reserves, fair value reserve, retained earnings, non-controlling interest after deductions for goodwill and intangibles and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes under the Central Bank guidelines; • Additional Tier 1 (AT1) – AT1 capital comprises eligible non-common equity capital instruments; and • Tier 2 (T2) – T2 capital comprises qualifying subordinated debt and undisclosed reserve. As at 30 June 2020, the Group was above the Central Bank imposed requirements, with a total capital adequacy ratio of 20.0 per cent., a Tier 1 capital ratio of 18.9 per cent. and a CET1 ratio of 18.9 per cent. Operational Risk The Group is exposed to operational risk due to inadequate or failed internal processes and systems, human error or external events. This risk excludes strategic and reputation risks but includes legal risks (described as exposure to fines, penalties and punitive damages resulting from supervisory actions, as well as private settlements), regulatory risks, and the risk arising from change initiatives. The Group has established an operational risk unit within Group Risk in order to institute and monitor the Group's operational risk policy. In line with the Group's three lines of defence model, the business and support units form the first line of defence and have the primary responsibility and accountability for identifying operational risk in their areas and to promptly mitigate any issues. The Group's operational risk unit is the second line of defence and provides consistent and standardised methods and tools to the Group's business and support functions for managing operational risks. The operational risk unit also provides analysis and reports in respect of operational risk monitoring and compliance to Board committees as well as to the Central Bank and the unit conducts independent oversight and monitoring of operational risks and mitigations measures. The Group's internal audit department is the line of defence and provides independent assurance to the Board. As part of its operational risk management, the Group undertakes: • Insurance/takaful cover management – the Group liaises with the Holding Company Group Risk to obtain the necessary insurance/takaful to protect the Group against unexpected and unforeseeable losses; • fraud management – focusing on investigation of fraud attempts against the Group, creating fraud awareness with stakeholders and identification and mitigation of fraud risks; • whistle-blower protection – to protect employees for reporting any malpractices within the Group; • cyber security management – to implement a comprehensive cyber-security framework in conjunction with the Holding Company Group Risk; and • business continuity management – to identify potential threats and the impacts to business operations that those threats, if realised, might cause and to provide a framework for building organisational resilience with the capability for an effective response if such threats materialise. The Group's business continuity process is based on ISO22301:2012 (E). Regulatory/compliance risk Regulatory/compliance risk is the risk of reputational and/or financial losses due to the failure to comply with applicable laws, regulations or sanctions. The Group has an independent compliance function, with the necessary mandate and authority to enforce and monitor compliance on a Group-wide basis. This includes compliance with applicable laws and regulations across the various jurisdictions where the Group operates. Compliance policies covering key areas are applicable Group-wide and are supplemented where necessary to address any unique local requirements (see further "Description of the Group – Risk Management – Compliance Policies"). These - 104 -
117. policies are supported by automated screening and monitoring systems and associated investigation teams to help comply with the relevant requirements . The Group undertakes independent compliance monitoring to provide assurance as to the effectiveness of controls. In addition, the Group provides mandatory compliance training to all relevant staff (both during on-boarding and periodically thereafter) to help ensure that key requirements are complied with. Reputational risk Reputational risk is the risk of potential loss of earnings and future revenue, loss in market value or lack of liquidity supply due to deterioration of reputation. It also includes the threat to the brand value of the Group as well as risks arising from non-compliance with the Internal Shari'a Supervision Committee's resolutions and fatwas while taking administrative decisions, products or executing financial products contracts. The Group has measures in place to ensure a positive perception of the Group and overall risk management ensures appropriate management of the Group's reputational risk. In particular, in respect of the Shari'a non-compliance risk, the Group has a permanent internal Shari'a control department which evaluates existing and proposed solutions prior to presenting it to the Internal Shari'a Supervision Committee for approval. The internal Shari'a control department also conducts a periodic audit to ensure compliance with Shari'a principles and rules. Legal and Internal Audit Industry regulation and supervision Banking and financial institutions in the UAE are subject to governmental supervision and regulation exercised by the UAE Securities and Commodities Authority, the Central Bank and the competent local authority in the Emirate in which the institution is registered, which in Dubai is the Department of Economic Development. The principal source of banking regulation in the UAE is the Central Bank. The Central Bank provides prudential supervision of each bank's capital adequacy, liquidity and AML controls as well as its general banking activities (see further "The United Arab Emirates Banking Sector and Regulations"). The Central Bank monitors compliance by way of regular inspections of banks and their records as well as through the requirement for regular submission of data including, but not limited to, deposited funds, financing and mortgage business, liquidity status and anti-money laundering measures. Emirates Islamic submits monthly, quarterly and annual reports to the Banking Supervision and Examination Department of the Central Bank. Emirates Islamic's memorandum and articles of association, audited financial statements, distribution of dividends and certain other documents are all required to be approved by the Central Bank. Additionally, Emirates Islamic operates under a commercial banking license granted to it by the Central Bank to undertake Islamic banking activities. The licensing of Islamic banks requires the appointment of an internal Shari'a supervision committee by such bank to ensure adherence to Shari'a rules and principles in the banks' operations and contracts. Emirates Islamic complies with this requirement through its Internal Shari'a Supervision Committee (see further "Management and Employees – Board Committees – Internal Shari'a Supervision Committee"). As a UAE company, Emirates Islamic is also subject to supervision and regulation at a corporate level by both the UAE Ministry of Economy and Planning and by the local regulatory authorities within each of the Emirates of the UAE in relation to branches located in those Emirates. Internal audit Operating under a mandate from the Board, the Group's internal audit department provides internal auditing services across the Group. The head of internal audit is independent from the other operations of the Group and the internal audit department has a principal reporting line to the BAC (see further "Management and Employees – Board and Management Committees – Board Audit Committee"). Planned audit activities are subject to review and approval by the BAC, which also evaluates and approves the level of resources available to the internal audit department for such activities. The BAC meets four times annually to discuss the audit reports produced by the internal audit department and to discuss the status of management actions on any issues previously raised with the committee. In addition to these meetings, the Vice President of Internal Audit has access to the Chairman of the BAC and the Chief Executive Officer as required. - 105 -
118. The primary objective of the internal audit department is to independently assess the adequacy and effectiveness of the control framework through which the activities of the Group are conducted . The internal audit department uses a risk-profiling methodology to assess the relative degree of risk in each of the auditable business units and for selecting the business activity to audit. BAC approval is obtained for the risk-based annual audit plan. The internal audit department is organised into specialist teams aligned with the Group's primary business and support areas and focuses on the employment of professionally qualified individuals with industry specific experience. Training requirements are identified annually and are delivered in coordination with the Holding Company Group's training centre. The internal audit department is itself subject to a review periodically by independent third party assessors appointed by the BAC. The types of audit assignments conducted by the internal audit department include: • operational audits – these involve undertaking a comprehensive review of all business and support activities in order to provide an evaluation of the organisational structure in place to manage the business and the control processes adopted in the related functions, against management's control objectives, which ensure that activities are: (i) authorised, accord with all internal and external authorisation requirements and are conducted in an orderly and efficient manner; (ii) recorded and reported accurately and upon a timely basis; and (iii) protected from loss/misplacement, howsoever arising; • IT audits – these involve appraising the internal control environment of automated information processing systems as well as evaluating the integrity, confidentiality and availability of IT systems generated information; and • compliance audits – these involve the review of adherence to internal policies, plans, procedures, as well as laws and regulations in the countries where the Group operates (including applicable AML and KYC policies and procedures) (see further "Description of the Group – Compliance Policies"). Compliance Policies Emirates Islamic aspires to the highest standards of ethical conduct, transparency and compliance with the local and international laws, rules and regulations which govern its businesses. To support this, the Group has implemented a compliance framework that includes a range of policies, systems and controls. All employees of the Group are required to adhere to its compliance policies at all times and any breaches of which must be reported to the compliance function. The role of the compliance function is to identify, assess and monitor the compliance risks faced by the Group, to advise and report to senior management on these risks and to oversee the satisfaction of regulatory requirements by the Group. The Group's policy is that all applicable legal, statutory and regulatory obligations in force in the jurisdictions in which the Group operates are to be met in full. The Group's compliance policies cover, amongst other areas, AML and CTF, sanctions, conflicts of interest and personal account dealing, compliance breach management and Foreign Account Tax Compliance Act ("FATCA") and Common Reporting Standards ("CRS"). All staff are required to be aware of the Group's policies and procedures, which are available to all staff through the intranet. In addition, the Group conducts specific and role-based training programmes for customer-facing staff. AML and CTF policies The Group's AML and CTF policies and procedures are aimed at ensuring that the Group is not being used for the purpose of laundering funds associated with drug trafficking, terrorism and other serious crimes. The Group's policy is to not establish relationships with customers whose transaction requirements gives rise to suspicions of involvement in money laundering activities. The Group has implemented detailed AML and CTF policies and procedures. The responsibility for implementation and monitoring adherence to the policies and procedures rests with the compliance - 106 -
119. department . As part of its AML and CTF policy, the Group conducts KYC and customer due diligence checks, which is mandatory for all new accounts. A customer profile is created at the time of account opening and is updated as customer circumstances change and develop during their time with the Group. Prospective customers are also required to provide key information regarding their identity, circumstances and expected transactions. The Group will terminate any customer relationship where the customer's conduct gives the Group reasonable cause to believe or suspect ongoing involvement with illegal activities. Any such termination follows reporting of the suspicion to the appropriate authorities and any further action by the Group is taken in consultation with the Central Bank. Emirates Islamic primarily replicates the Holding Company Group's compliance policies and all customers being considered for on-boarding undergo application of the defined "Client Risk Assessment Tool" ("CRAT") and are subsequently categorised as low, medium, high, special, restricted or prohibited and subject to applicable controls/due diligence based on the risk associated. Keeping in view the trends and typologies, the CRAT undergoes ongoing/regular enhancements to cover the various risk dynamics and to accurately identify the risks associated with any client prior to establishing a relationship and to ensure adequate due diligence. In this regard, the Group follows a risk-based approach in line with the Central Bank requirements and international best practices. Related to this, the policy also mandates enhanced due diligence procedures as warranted based on the inherent risk rating of each customer (including politically exposed persons). Emirates Islamic's customer portfolio base is subject to regular/periodic (delta) screening through an automated solution/system against Group-approved lists, both from sanctions as well as watch-listing perspective. Emirates Islamic has appointed a designated Money Laundering Reporting Officer ("MLRO") who reports to the Head of Compliance. The MLRO is primarily responsible for the implementation of the Holding Company Group's policies and awareness across the Group. The MLRO also provides advisory support to the businesses in respect of AML and CTF related issues and queries. The MLRO is also accountable for implementation as well as continuing operation of the automated AML system and the definition of applicable detection scenarios in coordination with the Holding Company Group's compliance function. The MLRO also interfaces with the Central Bank's Financial Intelligence Unit as and when required. Sanctions policies Emirates Islamic has systems and controls in place to ensure compliance with international and local sanctions regulations prescribed by the relevant regulators and to monitor transactions against applicable sanctions requirements. Emirates Islamic uses automated systems to screen and monitor customers and transactions to help ensure compliance with key regulatory requirements. Conflicts of interest and personal account dealing policies As a licensed financial institution, Emirates Islamic fully acknowledges the importance associated with the implementation of appropriate arrangements to ensure that any conflicts of interest are managed fairly and in full compliance with the laws and regulations of all jurisdictions in which the Group operates. Emirates Islamic follows the Holding Company Group's conflicts of interest and personal account dealing policies to address the identification and management of any conflicts of interest that may arise in the conduct of its business activities to mitigate the risk of treating a customer(s) unfairly and therefore reduce the associated reputational risk. The conflicts of interest policy sets out Emirates Islamic's overriding principle and expectations for managing conflicts of interest, including the standards in relation to the establishment and maintenance of "information barriers". The personal account dealing policy sets out the framework and guidelines in relation to personal account dealing and the management of insider information to ensure that the personal investments of employees are free from any conflicts of interest. Compliance breach management policy Emirates Islamic is exposed to potential compliance failures as a result of regulatory changes, the nature of tasks involved, human error and system or process failure. The importance of what constitutes a regulatory compliance breach and the significance of reporting, remediating, recording and escalation to prevent the - 107 -
120. likelihood of a repeat instance has been disseminated to all business areas within the Group . FATCA and CRS policy Emirates Islamic is exposed to the FATCA broad extra-territorial reach which requires all non-U.S. foreign financial institutions to register with the U.S. Internal Revenue Service, identify, document and report on accounts maintained by U.S. persons to the U.S. Inland Revenue Service or local regulatory bodies. Similarly CRS requires financial institutions operating in one or more of the 102 participating jurisdictions, such as Emirates Islamic, to identify and document tax residents of those jurisdictions and report these to the local regulators and tax authorities. Such local regulators and tax authorities may then exchange the information with the various jurisdictions on an annual basis. The FATCA and CRS policy sets out the minimum standards to be achieved and maintained by the Group (which should also be in accordance with local regulatory requirements). Information Technology Emirates Islamic's IT strategy is focused on providing reliable and accurate information systems to its customers and employees in a secure environment through the support of the IT department at the Holding Company Group level. The Holding Company Group's IT department oversees the system maintenance, testing, development and management for the Group and the Group's IT serves as a liaison with the Holding Company Group's IT department. Emirates Islamic has in place a wide range of banking software that has been developed for the Holding Company Group and re-engineered to suit Emirates Islamic's requirements. Emirates Islamic, in conjunction with the Holding Company Group, is in the final year of a four year, four-phased AED 1 billion digital transformation. This digital transformation aims to grow the Holding Company Group's digital innovation advantage in tandem with its increased global footprint. As at the date of this Base Prospectus, the digital transformation has achieved several regional and global technology "firsts", including the launch of a private cloud for the Holding Company Group, its own enterprise data platform and the launch of over fifty "agile squads" now operational across the Holding Company Group (including in the Group). Insurance/Takaful Emirates Islamic has various insurance/takaful policies in place, including directors and officers insurance/takaful, third party liability insurance/takaful and bankers blanket bond insurance/takaful. Emirates Islamic believes that these insurance policies provide it with comprehensive insurance/takaful coverage against the various risks to which it may be exposed. Legal Proceedings Litigation commenced against banks is a reasonably common occurrence in the banking industry due to the nature of the business undertaken. Emirates Islamic has formal controls and policies for managing legal claims. In the event of defending a claim, once professional advice has been obtained and if it is deemed that Emirates Islamic may be at risk of losing a claim, the amount of potential loss is reasonably estimated. Emirates Islamic then makes adjustments to account for any adverse effects which the claim may have on its financial standing. As at the date of this Base Prospectus, the Group is not involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Emirates Islamic is aware) which may have a significant effect on the financial position or profitability of Emirates Islamic or the Group. - 108 -
121. MANAGEMENT AND EMPLOYEES Board of Directors The Group operates under the direction of the Board , which is comprised of seven members vested with the power to manage the Group and conduct its business in accordance with applicable law, constitutional documents and resolutions of the shareholders. The Board is elected as a body by the shareholders for a term of three years. The Board is fully responsible for the Group's performance and for reporting to the shareholders and decisions are taken by the Board in the sole interest of the Group. As at the date of this Base Prospectus, the Board is comprised of the persons set out in the following table. Name Mr. Hesham Abdulla Al Qassim Mr. Buti Obaid Buti Al Mulla Mr. Shoaib Mir Hashem Khoory Mr. Mohamed Hamad Obaid Khamis Al Shehi Mr. Mohamed Hadi Ahmad Abdulla Al Hussaini Mr. Ali Humaid Ali Al Owais Mr. Shayne Nelson Position Chairman Vice Chairman Director Director Director Director Director Mr. Hesham Abdulla Al Qassim was appointed as the Chairman of Emirates Islamic in September 2011. Mr. Al Qassim is also the Vice Chairman and Managing Director of ENBD, the Chairman of Emirates NBD S.A.E. (Egypt), the Chairman of DenizBank A.Ş., the Vice Chairman and Chief Executive Officer of Wasl Asset Management Group, the Chairman of the Emirates Institute for Banking and Financial Studies, the Chairman of Dubai Sports Corporation and the Vice Chairman of Dubai Autism Centre. He is also a director on the boards of Amlak Finance, DIFC Investments LLC, Dubai International Financial Centre Authority, Emirates Telecommunications Corporation (Etisalat), International Humanitarian City, National General Insurance Co., Pakistan Telecommunication Company Limited and Pak Telecom Mobile Ltd. Mr. Buti Obaid Buti Al Mulla was appointed as the Vice Chairman of Emirates Islamic in September 2011. Mr. Al Mulla is also the Chairman of Dubai Insurance Co. and the Vice Chairman of Emirates Investment Bank PJSC. He is also a director on the boards of Dubai Bank PJSC and ENBD. Mr. Shoaib Mir Hashem Khoory was appointed as a director of Emirates Islamic in September 2011. Mr. Khoory is also the Chairman of Dubai Bank PJSC, Lycee Francais International, International Concept Education and Kent College Dubai and the Managing Director of Mir Hashim Khoory LLC. He is also a director on the boards of Dubai Real Estate Corporation (WASL), ENBD, Jebel Ali Cement Factory and MAHY Khoory Group. Mr. Mohamed Hamad Obaid Khamis Al Shehi was appointed as a director of Emirates Islamic in September 2011. Mr. Al Shehi is the Secretary to the Supreme Fiscal Committee of the Government, Deputy Director General of the Government's Department of Finance and Acting Executive Director of the Dubai Financial Support Fund. He is also the Chairman of Emirates NBD Capital Limited and a director on the boards of Dubai Bank PJSC, Dubai Real Estate Corporation (WASL), Emirates NBD Asset Management Ltd., ENBD (he also represents ENBD on the Board of Governors of the GCC Board Directors Institute) and Neuron LLC. Mr. Mohamed Hadi Ahmad Abdulla Al Hussaini was appointed as a director of Emirates Islamic in September 2011. Mr. Al Hussaini is also a director on the boards of Dubai Refreshments Company, Emaar Malls PJSC, Emirates Integrated Telecommunications Company (du) and ENBD. Mr. Ali Humaid Ali Al Owais was appointed as a director of Emirates Islamic in March 2013. Mr. Ali is the Chairman of Al Owais Group, Moderna Group LLC, United Can Company LLC and United Food Company PJSC and the Vice Chairman of Dubai Refreshment Co. PJSC and Modern Bakery. He is also a director on the boards of Dar Al Takaful, ENBD and Oman Refreshment Company. Mr. Shayne Nelson was appointed as a director of Emirates Islamic in December 2013. Mr. Nelson is the Chief Executive Officer of ENBD. He is also a director on the boards of Emirates NBD Capital Limited, - 109 -
122. Emirates NBD Capital PJS and Tanfeeth LLC . He is also a Founding Member of the Higher Colleges of Technology Industry Advisory Council, a Graduate Member of the Australian Institute of Company Directors and an Associate Fellow of the Australian Institute of Managers. Business Address and Conflicts of Interest The business address of Emirates Islamic's directors is 3rd Floor, Building 16, Dubai Health Care City, P.O. Box 6564, Dubai, United Arab Emirates. No member of the Board has any actual or potential conflict of interest between his duties to Emirates Islamic and his private interests or other duties. Senior Management The day-to-day management of the Group is conducted by its senior management (the "Senior Management"). The Senior Management meets regularly to discuss the business strategy, business plans and performance, strategy and operation of the Group and submits its recommendation to the Board. As at the date of this Base Prospectus, the Senior Management is comprised of the persons set out in the following table. Name Mr. Salah Amin Mr. Wasim Saifi Akhtar Mr. Mohammad Kamran Wajid Mr. Suhail Bin Tarraf Ms. Huda Sabil Abdulla Ms. Meitha Al Hashemi Mr. Marwan Salem Abunawas Al Mheiri Dr. Abdulsalam Kilani Mr. Ebrahim Khalil Qayed Position Chief Executive Officer Deputy Chief Executive Officer, Consumer Banking and Wealth Management Head of Wholesale Banking Chief Operating Officer Chief Financial Officer Chief Risk Officer Chief Human Resources Officer Head of Internal Shari'a Control Head of Treasury and Markets Mr. Salah Amin was appointed as the Chief Executive Officer in 2018. In this role, Mr. Amin is responsible for managing the overall operations of the Group, implementing the Group's vision and maximising stakeholder value. With over 30 years of banking experience, he started his career with the Holding Company Group in 1989. He has extensive experience across corporate clients and distribution management, creating and driving strategy on behalf of clients in several geographies and industries, and has worked in a number of senior managerial roles in the Holding Company Group (including as the head of various branches, the head of the corporate banking unit and as the Executive Vice President and Head of the Corporate Banking Group in ENBD). He is a member of the boards of several Holding Company Group companies (such as Emirates NBD Capital Limited). He is also a member of the boards of the Al Nasr Sports Club and National General Insurance Company. Mr. Amin holds a degree in business administration from American University (United States). Mr. Wasim Saifi Akhtar was appointed as the Deputy Chief Executive Officer, Consumer Banking and Wealth Management in 2017. In this role, Mr. Akhtar leads the consumer banking, business banking, distribution and wealth management teams. With around 40 years of experience in banking, he is particularly experienced in the Islamic banking sector. Prior to joining Emirates Islamic, he held multiple management roles across a number of financial institutions (including as the Chief Executive Officer of Standard Chartered Bank in Sri Lanka, Chief Executive Officer and Global Head of Islamic Banking and Consumer Banking of Standard Chartered Saadiq Berhad in Malaysia and Head of Corporate Banking and Head of Retail Banking of Dubai Islamic Bank PJSC). Mr. Akhtar holds a Bachelor of Commerce from Mumbai University (India) and a Master of Business Administration from Rutgers University (United States). Mr. Mohammad Kamran Wajid was appointed as the Head of Wholesale Banking in 2019. In this role, Mr. Wajid leads Emirates Islamic's corporate banking, treasury, financial institutions, syndications and structured finance and transaction banking businesses. He is also a board member of Emaar Industries and - 110 -
123. Investments JSC . With over 25 years of experience in the UAE banking sector, he has worked with the Holding Company Group for over 18 years and, during this time, has held a number of senior management positions (including as the Chief Executive Officer of Emirates NBD Capital Limited, the Chief Executive Officer of Emirates Financial Services and the Group Head of International Wholesale Banking and Financial Institutions). Prior to joining the Holding Company Group, he worked with National Bank of Abu Dhabi PJSC (now part of First Abu Dhabi Bank PJSC) and Mashreqbank psc. He also previously served as a board member of Shuaa Capital psc and the Group Chief Executive Officer of Emerald Palace Group. Mr. Wajid holds a Master of Business Administration in Finance and Marketing from Aligarh University (India). Mr. Suhail Bin Tarraf was appointed as the Chief Operating Officer in 2017. In this role, Mr. Tarraf is responsible for Emirates Islamic's operational and IT functions as well as for leading Emirates Islamic's digital transformation strategy across products, processes and services. He has worked with the Holding Company Group for over 17 years and, during this times, has held various senior positions (including as the General Manager of Human Resources and the Chief Executive Officer of Tanfeeth LLC). Mr. Tarraf holds a Bachelor in Business Administration from American University (UAE) and a Master in Business Administration from International University (UAE). He has also completed a number of executive programmes, including the General Management programme at Harvard Business School, the Finance for Leaders programme at INSEAD Singapore, the Strategic Leadership programme at Hult Business School and the Human Resource Executive programme at Michigan Ross School of Business. Ms. Huda Sabil Abdulla was appointed as the Chief Financial Officer in 2019. In this role, Ms. Abdulla is responsible for the finance function and directs and controls Emirates Islamic's financial strategies, business objectives, budget and performance management. She has worked with the Holding Company Group for over 25 years (including as the Vice President of Business Performance at Emirates Islamic). Ms. Abdulla holds a Bachelor in Business Administration from Ajman University (UAE) and is a qualified Certified Management Accountant (CMA) and Certified Islamic Professional Accountant (CIPA). Ms. Meitha Al Hashemi was appointed as the Chief Risk Officer in 2016. In this role, Ms. Al Hashemi is responsible for maintaining and managing a robust risk governance framework. She has worked with the Holding Company Group for over 24 years (including as the Chief Credit Officer at ENBD). She is also a board member of Dar Al Takaful and EIFB. Ms. Al Hashemi holds a Bachelor's Degree in Business Management and Computer Science, an International Bank Management Certification from Florida International University (United States) and has completed a Risk Management in Banking programme from INSEAD. Mr. Marwan Salem Abunawas Al Mheiri was appointed as the Chief Human Resources Officer in 2018. In this role, Mr. Al Mheiri is responsible for managing and monitoring Emirates Islamic's human resource function. With over 19 years of experience in the banking sector, he has previously also served as the Head of Business Banking and the Head of Contracting, Real Estate and Government in Corporate Banking at Emirates Islamic. Mr. Al Mheiri holds a Bachelor's Degree in Organisational Management from Central Michigan University (United States) as well as leadership certifications from Harvard Business School, Wharton School, IESE Business School and Euromoney Learning Solutions. He is also a member of the third cohort of the Impactful Leaders programme at the Mohamed Bin Rashed Centre of Leadership Development. Dr. Abdulsalam Kilani was appointed as the Head of Internal Shari'a Control in 2012. In this role, Dr. Kilani is responsible for Shari'a supervision, audit, structuring and advisory at Emirates Islamic. Prior to joining Emirates Islamic in 2012, he was the Head of Shari'a in Dubai Bank PJSC. With over 12 years of experience in the Islamic banking sector, he has particular expertise in the establishment of Shari'a governance structures, Shari'a supervisory and audit functions, structuring Shari'a compliant solutions, Shari'a advisory, training and development. Dr. Kilani holds a Bachelor's Degree in Islamic Studies from the UAE University (UAE), an M.A. Degree in Fiqh from the American University (United Kingdom) and a PhD in Islamic Fiqh from the Scandinavian University (Norway). He is also one of the Founding Members of the UAE Stock Screening Committee of Islamic Banks for Shari'a Screening of Equities and a member of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Shari'a Standards Dubai Chapter. Mr. Ebrahim Khalil Qayed was appointed as the Head of Treasury and Markets in 2019. In this role, Mr. Qayed is responsible for managing the Group's liquidity and strategic balance sheet, providing treasury sales, structuring and execution solutions to business units within the Group and managing the Group's - 111 -
124. investment book . He started his career with the Holding Company Group in 2006 and, during his career, held various positions (including as a Branch Manager, Head of Flow and Execution Desk and Head of Treasury Sales and Structuring). He joined Emirates Islamic in 2012. Mr. Qayed holds a Bachelor in Information System from the University of Melbourne (Australia) and a Master in International Business from Monash University (Australia). He has also completed the Strategic Thinking and Leadership programme at Wharton School and the Leadership Development programme at Darden Business School. Business Address and Conflicts of Interest The business address of the Senior Management is 3rd Floor, Building 16, Dubai Health Care City, P.O. Box 6564, Dubai, United Arab Emirates. No member of the Senior Management has any actual or potential conflict of interest between his or her duties to Emirates Islamic and his or her private interests or other duties. Board Committees To assist the Board in its oversight of the Group's operations, Emirates Islamic has established four board committees and seven management committees. Board Credit and Investment Committee The BCIC consists of six members who meet regularly to review the quality and performance of the credit and investment portfolio of the Group. The BCIC reviews and oversees the effectiveness of the Group's credit and investment risk strategy whilst taking into consideration the risk appetite of the Group. Among other things, the BCIC approves financing strategy and policies, establishes delegated financing authorities and evaluates credit and investment proposals. The BCIC meets weekly or periodically as and when required. In 2019, the BCIC met 41 times. As at the date of this Base Prospectus, the BCIC members were: Mr. Shoaib Mir Hashem Khoory (Chairman of BCIC), Mr. Hesham Abdulla Al Qassim, Mr. Mohamed Hamad Obaid Khamis Al Shehi, Mr. Mohamed Hadi Ahmad Abdulla Al Hussaini, Mr. Ali Humaid Ali Al Owais and Mr. Shayne Nelson. Board Audit Committee The BAC is responsible for reviewing all internal audit and management compliance reports that are produced by the Group and providing direction to management on rectifying weaknesses or shortcomings highlighted in such reports. The BAC oversees and monitors all internal controls and systems in place for financial reporting and ensures legal and regulatory compliance on financial matters. The BAC is also responsible for receiving and reviewing management letters issued by external auditors and reports of regulatory bodies. Meetings of the BAC are attended by its members as well as the Chief Executive Officer and the Chief Financial Officer. Other members of executive and senior management may attend by invitation. The BAC meets quarterly or periodically as and when required. In 2019, the BAC met four times. As at the date of this Base Prospectus, the BAC members were: Mr. Mohamed Hamad Obaid Khamis Al Shehi (Chairman), Mr. Shoaib Mir Hashem Khoory, Mr. Mohamed Hadi Ahmad Abdulla Al Hussaini and Mr. Shayne Nelson. Board Risk Committee The BRC is authorised by, and regularly reports to, the Board in accordance with the functions and powers set out in the BRC's terms of reference. The BRC meets quarterly or periodically as and when required. In 2019, the BRC met 4 times. As at the date of this Base Prospectus, the BRC members were: Mr. Ali Humaid Ali Al Owais (Chairman), Mr. Hesham Abdulla Al Qassim, Mr. Buti Obaid Buti Al Mulla and Mr. Shayne Nelson. Board Nomination and Remuneration Committee The Board Nomination and Remuneration Committee ("BNRC") reviews and guides management on strategic human resource decisions relating to executive succession planning, nationalisation strategy, - 112 -
125. management appointments and remuneration policies . The BNRC ensures that human resource governance within the Group is implemented in a professional and efficient manner. The BNRC meets quarterly or periodically as and when required. In 2019, the BNRC met three times. As at the date of this Base Prospectus, the BNRC members were: Mr. Buti Obaid Buti Al Mulla (Chairman), Mr. Mohamed Hadi Ahmad Abdulla Al Hussaini, Mr. Ali Humaid Ali Al Owais and Mr. Shayne Nelson. Executive Committee The role of the EXCO is to collectively monitor the performance of the Group and make decisions within the authority limits delegated to it by the Board. The EXCO makes specific recommendations to the Board on decisions that fall outside its delegated authority limits, including day-to-day running of the Group, strategic growth of the Group and implementation of decisions by the Board. The EXCO is chaired by the Chief Executive Officer and comprises of eight other executive members. The EXCO meets once every four weeks. Assets and Liabilities Committee The role of the ALCO is to monitor and report the Group's liquidity risk profile, market risk exposure (traded and non-traded) as well as capital adequacy. The ALCO is chaired by the Chief Executive Officer and comprises of eight other executive members (including two executive members from ENBD). The ALCO meets once a month in the normal course of business and more often if needed. Management Credit Committee The role of the MCC is to provide guidance to management on the strategic objectives of the Group. It assesses, approves and recommends facilities, renewal of existing facilities, debt settlement and write-offs, impairments/provisioning and amendments to pricing and ratings, within predetermined parameters. The MCC is chaired by the Chief Executive Officer (or the Chief Risk Officer in the absence of the Chief Executive Officer) and comprises five other executive members. The MCC meets weekly. Management Investment Committee The role of the Management Investment Committee ("MIC") is to approve the Group's investments and ensure that an appropriate balance is achieved between risks and rewards. The MIC manages and monitors the Group's investment portfolio to ensure it conforms to the strategic vision of the Group. The MIC also supports in the reporting of the portfolio performance to the Board. The MIC is chaired by the Chief Executive Officer comprises five other executive members. The MIC meets quarterly. Holding Company Group Risk Committee The role of the GRC is to approve all Holding Company Group-wide risk related policies, procedures, risk measurement and methodology (including in respect of the Group). The GRC is chaired by the Holding Company Group Chief Risk Officer (or the Holding Company Group Chief Executive Officer in the absence of the Holding Company Group Chief Risk Officer) and comprises seven other executive members (including the Group's Chief Executive Officer and the Group's Chief Risk Officer). The GRC meets at least six times in a year. Operational Risk Committee The role of the Operational Risk Committee ("ORC") is to review the Group's operational risks periodically and to monitor the effectiveness of existing controls to mitigate such risks. The ORC is chaired by the Chief Executive Officer and comprises the Chief Risk Officer as well as all business heads, support function heads and governance and control function heads. The OIC meets quarterly. Internal Shari'a Supervision Committee All transactions that Emirates Islamic undertakes and all products that it offers are strictly Shari'a compliant. Emirates Islamic's objective is to provide the highest standards of Islamic finance and all Emirates Islamic's activities are supervised by Emirates Islamic's Internal Shari'a Supervision Committee. Before either the execution of a transaction or the launch of a new product, the terms of the transaction or the product (as applicable) are presented to the Internal Shari'a Supervision Committee for its approval. - 113 -
126. The Internal Shari 'a Supervision Committee is an independent body of Shari'a scholars that is appointed by the General Assembly of Emirates Islamic. Its key task is to supervise the application of different aspects of Shari'a within Emirates Islamic and to ensure (through the internal Shari'a control department and internal Shari'a audit) that all transactions are undertaken in strict compliance with Shari'a. The resolutions and pronouncements of the Internal Shari'a Supervision Committee are binding on the management and the directors of Emirates Islamic. The Internal Shari'a Supervision Committee meets periodically as and when required. As at the date of this Base Prospectus, the Internal Shari'a Supervision Committee is comprised of the Shari'a scholars set out in the following table. Name Dr. Mohamed Abdul Rahim Sultan Al Ulama Sheikh Essam Mohamed Ishaq Position Executive Member Member Dr. Mohamed Abdul Rahim Sultan Al Ulama is a professor of Islamic Studies in the Emirates College and Head of Research and Studies for the Dubai Quran Award. As at the date of this Base Prospectus, he sits on the Shari'a board and committees of several Islamic banks and institutions including Dubai Islamic Bank PJSC (UAE), Dar Al Takaful PJSC (UAE) and National Bonds Corporation PJSC (UAE). He holds a PhD in Shari'a from Umm Al Qurah (Kingdom of Saudi Arabia). Sheikh Essam Mohamed Ishaq is a member of the Higher Shari'a Authority of the Central Bank. He also serves as the Deputy Chairman of the Governance and Ethics Board of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and as a Member of the Supreme Council for Islamic Affairs in the Kingdom of Bahrain. As at the date of this Base Prospectus, he is the Chairman and member of the Shari'a board and committees of several Islamic banks and institutions including Abu Dhabi Islamic Bank PJSC (UAE). He holds a Bachelor's Degree in Political Science from McGill University (Canada). Employees As at 30 June 2020, the Group had a total of 1,921 employees, the majority of whom were full-time employees. Emirates Islamic has no history of industrial disputes and considers its relationship with its employees to be good. Learning and Development Emirates Islamic treats learning and development as an integral part of staff development. Through an employee-centred and manager-supported approach that is aligned with the Group's strategy, the training function within the Group's human resources department provides targeted learning (role and grade specific) to the Group's employees. Such training covers a broad range of retail, corporate and Shari'a based training as well as digital learning solutions and internal certification programmes to support key business priorities. In addition, various management, sales and service-based training sessions are provided to the appropriate staff members to encourage capability building and performance enhancement. Many external training courses and relevant conferences, seminars and workshops are facilitated which benefit the Group's staff. Remuneration Policy Emirates Islamic provides a competitive total reward policy to attract, motivate and retain high calibre employees to drive performance and growth of the Group's business. The contractual pay consisting of base pay and job based allowances ensure that the pay levels are attractive. The variable pay scheme for employees, in the form of incentives and bonuses, is dependent on performance. Employees are also offered a number of benefits which are usual in the financial segment of the region, such as family medical insurance/takaful and termination benefits. UAE national pension fund All UAE nationals employed by the Group participate in the UAE Federal Government sponsored General Pension and Social Security Pension Scheme. The scheme enables members to achieve the maximum pension of 100 per cent. of their salary after 30 years of service. - 114 -
127. Emiratisation In 2017 , the Central Bank introduced a point based system which encourages the development and deployment of UAE nationals in critical roles at a variety of levels. Emirates Islamic is committed to achieving the Central Bank "Emiratisation" targets and has implemented corresponding targets across all business units as well as specially designed programmes for UAE nationals. Since the implementation of the point based system in 2017, the Group has consistently met and exceeded the annual targets set by the Central Bank. In 2019, the Group exceeded the "Emiratisation" target by 4.0 per cent. (compared to exceeding by 4.0 per cent. in 2018 and 9.0 per cent. in 2017). The Group employed 388 UAE nationals as at 30 June 2020, with approximately 27.0 per cent. employed as executives or managers. Emirates Islamic plans to continue to increase the percentage of employees, and in particular senior leadership employees, who are UAE nationals in line with the "Emiratisation" policy. - 115 -
128. THE UNITED ARAB EMIRATES BANKING SECTOR AND REGULATIONS Summary With 48 commercial banks as at 31 March 2020 (comprising 21 local banks and 27 foreign commercial banks) operated in the UAE (source: Statistical Bulletin March 2020 (preliminary data), Central Bank), the UAE could be viewed as an over-banked market. Financial and insurance activities accounted for 10.3 per cent. and 10.2 per cent. of Dubai's GDP at constant prices for the first six months of 2019 and the year ended 31 December 2018, respectively (source: Gross Domestic Product at Constant Prices (preliminary estimates), Dubai Statistics Centre). Within the UAE as a whole, the financial and insurance sector accounted for 8.8 per cent. and 8.5 per cent. of the UAE's GDP at constant prices for the first quarter of 2019 and the year ended 31 December 2018, respectively (source: First Quarter Constant GDP and Quarterly Constant GDP (preliminary estimates), Federal Competitiveness and Statistics Authority). As a banking regulator, the Central Bank, established in 1980, has grown in stature over the years and is the governing body that regulates and supervises all banks operating in the UAE. The Central Bank monitors banks through its Banking Supervision Department while its Examination Division conducts periodic reviews of banks based on the risk profile of each bank (i.e., risk-based supervision examination). It also reviews all of the returns submitted by the banks to the Central Bank. This regulatory oversight also includes a granular scrutiny of all financial and non-financial returns filed with the Central Bank. Historically, the Central Bank does not act as a "lender of last resort". Instead, this role tends to fall on the individual Emirs of each Emirate. However, the introduction by the Central Bank in 2014 of the IMLF allows non-Islamic UAE banks to use certain rated or UAE Federal Government entity issued assets as collateral to access Central Bank liquidity overnight in order to help their liquidity management. Additionally, the Central Bank's extension of the spectrum of "Eligible Collateral" under the Collateralised Murabaha Facility allows Islamic banks to access central bank liquidity against collateral as is the case for conventional banks under the IMLF. Characteristics of the Banking System Exposure to the oil sector With much of the national economy directly or indirectly dependent on the oil sector, UAE banks are potentially vulnerable to business erosion during long periods of low oil prices (see further "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – Oil price volatility and future currency de-pegging could adversely impact the Group's net profit margins and financing costs" and "Risk Factors – Risk Factors relating to the Group's business activities – Risk Factors Relating to the UAE and the Middle East – The UAE's high dependence on oil revenues may adversely affect the Group's business"). In particular, oil revenues tend to drive levels of liquidity and government infrastructure investment. Dubai is not a large oil producer, with the mining and quarrying sector accounting for 1.7 per cent. and 1.6 per cent. of Dubai's GDP at constant prices for the first six months of 2019 and the year ended 31 December 2018, respectively (source: Gross Domestic Product at Constant Prices (preliminary estimates), Dubai Statistics Centre). However, mining and quarrying was one of the largest contributors to the UAE's GDP at constant prices in the first quarter of 2019 and the year ended 31 December 2018, comprising 31.2 per cent. and 30.0 per cent., respectively, of the GDP for such periods (source: First Quarter Constant GDP and Quarterly Constant GDP (preliminary estimates), Federal Competitiveness and Statistics Authority). However, non-oil sectors are gradually gaining ground and the UAE economy is becoming less susceptible to oil price movements. Historic lack of consolidation The UAE could be viewed as an over-banked market, even by regional standards. As at 31 March 2020, 48 commercial banks (comprising 21 local banks and 27 foreign commercial banks) operated in the UAE (source: Statistical Bulletin March 2020 (preliminary data), Central Bank), serving a population estimated to be in the region of 9.7 million in mid-2019 (source: Statistical Yearbook 2019 edition, United Nations Department of Economic and Social Affairs – Statistics Division). Historically, there has been little impetus for consolidation. The federal structure of the UAE has, to some extent, encouraged the fragmented nature of the banking sector, with the individual Emirates wishing to - 116 -
129. retain their own national banks . Rivalries between large local business families and a desire not to dilute shareholdings have also hampered the process of consolidation. The relatively small size of most UAE banks has occasionally hindered them from competing for large financing transactions in the region. It also means that they have comparatively small franchises with which to absorb capital costs, such as IT system development. However, in October 2007, the UAE's then second and fourth largest banks at the time, EBI and National Bank of Dubai PJSC merged to become Emirates NBD PJSC. In October 2010, Dubai Islamic Bank PJSC took a controlling stake of 58.25 per cent. in Tamweel. In 2012, Emirates Islamic merged with Dubai Bank PJSC. The merger of National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC, which was consummated on 30 March 2017, stimulated further movement towards greater consolidation amongst the UAE banks. The merger of Abu Dhabi Commercial Bank PJSC, Union National Bank PJSC and Al Hilal Bank PJSC was completed in May 2019 while, in January 2020, Dubai Islamic Bank PJSC announced the completion of its acquisition of Noor Bank PJSC. While such continued consolidation would reduce the level of concentration in the domestic banking sector, it could also likely lead to a significant alteration of the competitive environment with fewer, larger locally incorporated banks competing for the larger financing transactions in the region with the foreign banks (which have tended to have comparatively larger franchises) and enabling such local banks to have access to greater infrastructure and resources to absorb capital costs. Moreover, the UAE's membership of the World Trade Organisation will likely require greater economic liberalisation but it is unclear to what extent this will encourage foreign banks to further expand their presence in the market. In the long-term, however, it is likely to lead to increased competition, which should spur consolidation, both within the UAE and across the region generally. Domestic focus Although UAE-incorporated banks are predominantly focused on the domestic market, some have small operations overseas and are showing growing interest in cross-border business, a trend which is likely to continue in the event of further merger activity in the sector. With a large number of banks competing for a limited number of wholesale lending opportunities, most banks historically turned to retail banking which was a previously untapped market. However, increasing competition in this area has gradually eroded margins and encouraged a relaxation of lending criteria. As the market has been tested only to a limited extent under adverse conditions, it is difficult to predict the future likelihood of asset quality problems. Expansion of retail operations has required heavy investment in distribution channels, particularly ATM networks, kiosks and telephone and internet banking services. As a consequence, IT costs have been a prominent feature of many UAE banks' expenses. Limited foreign ownership In 1987, the UAE Federal Government placed a freeze on new foreign banks opening operations in the UAE. At the same time, existing foreign banks were limited to a maximum of eight branches, which restricted their ability to develop any retail potential. However, three banks with a GCC state origin (i.e., the National Bank of Kuwait S.A.K.P., Samba Financial Group and Doha Bank (Q.P.S.C.)) were awarded licences by the Central Bank following an agreement to permit market access to banks of GCC state origin in line with continuing efforts for regional integration. During 2002, the Government issued a decree establishing the Dubai International Financial Centre (the "DIFC"). The DIFC, located in Dubai, is a free trade zone and financial services centre focusing on private banking, asset management, investment banking, re-insurance activities, Islamic finance, securities trading and back-office operations. The DIFC has its own civil and commercial laws and has been granted authority to self-legislate in civil and commercial cases. The opening of the DIFC has enabled international banks to establish a presence and compete in the wholesale banking market and this has seen new entities entering the market place. In 2013, the Government of Abu Dhabi sought to replicate the success of the DIFC by announcing its intention to establish the Abu Dhabi Global Market in Abu Dhabi (the "ADGM"), as an international financial free zone with its own legal framework (closely based on English common law). The - 117 -
130. ADGM became operational in mid-2015 and , as at the date of this Base Prospectus, it is unclear to what extent this will impact the competitive and regulatory landscape in the domestic banking sector. The 2018 Federal Law amended the minimum permissible shareholding by UAE nationals in UAE banks to 60 per cent. Islamic banking Shari'a (Islamic) law forbids the charging of interest on any financial transaction. A number of banks have emerged to serve customers who wish to observe this principle. These institutions offer a range of products which, whilst broadly corresponding with conventional banking transactions, are structured in a way which is in compliance with Shari'a rules and principles and avoids the application of interest. The UAE is home to numerous institutions offering Islamic banking and financial products, including Abu Dhabi Islamic Bank PJSC, Ajman Bank PJSC, Amlak Finance, Dubai Islamic Bank PJSC, Dubai Islamic Insurance & Reinsurance Company (AMAN), Emirates Islamic, Islamic Arab Insurance Co. (PSC) (Salama), Sharjah Islamic Bank PJSC and Tamweel. The number of Islamic banks continues to increase, with both new entrants to the market and existing conventional banks recasting themselves as Islamic banks. In addition, conventional financial institutions often offer Shari'a compliant products. The 2018 Federal Law requires financial institutions licensed by the Central Bank to operate their business activities in compliance with the rules, standards and general principles established by the Higher Shari'a Authority and, in certain circumstances, requires such financial institutions to obtain the consent of the Higher Shari'a Authority before undertaking certain licensed financial activities. The fatwas and opinions issued by the Higher Shari'a Authority are binding on internal Shari'a supervisory committees of Islamic banks in the UAE. In May 2018, the UAE Securities and Commodities Authority issued Chairman Decision No. 20/R.M. of 2018 on the Offering or Issuance of Islamic Securities (the "ISRs"), in order to add an additional layer of disclosure and transparency to the UAE's sukuk market and strengthen investor protection. The ISRs apply to: (i) domestic issuers of Shari'a-compliant securities seeking to offer those securities either within or outside the UAE; and (ii) foreign issuers of certain Shari'a-compliant securities seeking to offer those securities into the UAE. The ISRs outline a number of key disclosure requirements that must be included in the offering document, a number of specific requirements in respect of the fatwa as well as the continuing obligations that apply to Shari'a-compliant securities, including the provision of an annual Shari'a report. Supervision of banks The Central Bank's primary roles are to formulate and implement banking, credit, monetary and fiscal policy and to be responsible for ensuring price and currency stability with free convertibility to foreign currencies. It is also the "bank for banks" within the UAE, although it is not the "lender of last resort". In the event of a bank experiencing financial difficulties or a solvency crisis, rescue funds – such as long-term liquidity or equity support – have historically come from the Emirate in which the institution is based. However, in the event of a run on the currency or a major banking crisis, it is likely that the UAE Federal Government would ultimately stand as de facto defender of the currency and the "lender of last resort" (see also "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Targeted Economic Support Scheme"). In 2018, the UAE Federal Government published the 2018 Federal Law replacing Union Law No. 10 of 1980. The 2018 Federal Law grants the Central Bank powers to: • draw up and implement monetary policy; • exercise currency issuance; • organise licensed financial activities, establish the foundations for carrying them on, and determine the standards required for developing and promoting prudential practices in accordance with the provisions of the 2018 Federal Law and international standards; • set up appropriate regulations and standards for protection of customers of licensed financial institutions; - 118 -
131. • monitor the credit condition in the UAE, in order to contribute to the achievement of balanced growth in the national economy; • manage foreign reserves to maintain, at all times, sufficient foreign currency assets to cover the monetary base as per the provisions of the 2018 Federal Law; and • regulate, develop, oversee and maintain soundness of the financial infrastructure systems in the UAE. Historically, income from overseas investments has been used to fund fiscal deficits, obviating the need for the Central Bank to issue government debt. However, the Central Bank does issue CDs to UAE banks, denominated in both U.S. dollars and UAE dirhams, in order to absorb excess liquidity rather than to meet a specific funding need. There is presently no active secondary market in these securities but they can be redeemed at face value at the Central Bank at any time. In 2007, the Central Bank introduced an auction system which allows U.S. dollar drawings against UAE dirham CD holdings. In respect of Shari'acompliant CDs based on murabahas, commercial banks in the UAE are required to comply with Central Bank Notice No. 5802/2010 concerning Shari'a-compliant Certificates of Deposit guidelines. The Central Bank has also issued guidelines for collateral management under the Central Bank's Collateralised Murabaha Facility (effective from 1 April 2015) (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Liquidity – Collateralised Murabaha Facility"). The UAE dirham is linked to the International Monetary Fund's Special Drawing Right. However, the U.S. dollar is the intervention currency and, in practice, the UAE dirham is pegged to the U.S. dollar. This pegged exchange rate has been in place since the 1980s and has proved to be resilient both to political tensions in the region and to fluctuations in oil prices. The Central Bank is also responsible for regulating financial institutions in relation to money laundering controls and enforcing Central Bank Notice No. 74/2019 concerning Procedures for Anti-Money Laundering, Central Bank Notice No. 79/2019 concerning standards on Anti-Money Laundering and Federal Decree Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations. The Central Bank has established a Financial Intelligence Unit and has launched an online filing system which provides an enhanced AML reporting mechanism. In addition, the Central Bank has issued a number of detailed regulatory instructions in respect of AML and procedures. The UAE further strengthened its legal authority to combat terrorism and terrorist financing by passing Federal Law No. 20 of 2018 on Combating Terrorism Offences, which provided for the establishment of a National Anti-Money Laundering and Counter Financing Terrorism Committee. The Central Bank has also updated its National Risk Assessment for 2019 on Money Laundering and Terrorist Financing (with the updated assessment being posted on the Central Bank's reporting portal). This update explains the methodology applied to assess inherent money laundering and terrorist financing risks in the UAE, the process for such assessment and the results. Financial institutions must ensure full awareness in respect of the updated assessment and must designate employees for ensuring compliance with AML and CTF requirements in the UAE as well as to take necessary steps to include the results of internal AML and CTF risks assessments within relevant reports to the Central Bank. Although the Central Bank is responsible for regulating all banks, exchange houses, investment companies and other financial institutions in the UAE, the Dubai Financial Services Authority regulates all banking and financial services activities in the DIFC while the ADGM Financial Services Regulatory Authority regulates activity in the financial services sector in the ADGM. The Central Bank has also been growing in stature as a banking supervisor. However, it is hampered in its role by the level of legal autonomy afforded to the individual Emirates, which at times makes it difficult to enforce directives uniformly across the banking sector. Lack of developed capital markets The absence of mature investment securities (including Sukuk and bonds) or equity markets in the UAE means that banks have often shouldered the burden of long-term financing. This has tended to create a maturity mismatch in their balance sheets, as most of their liabilities are short-term customer deposits. Although the two national stock markets, the DFM and the ADX (both of which were established in 2000), have grown over recent years and have benefitted from the inclusion of the UAE in the MSCI Emerging Markets Index since 2014, they continue to experience bouts of volatility. - 119 -
132. Nasdaq Dubai (formerly known as the Dubai International Financial Exchange) is a securities exchange located in the DIFC which commenced operations on 26 September 2005. The DFM acquired Nasdaq Dubai in July 2010. The DFM and the ADX were upgraded to the MSCI Emerging Markets Index with effect from 1 June 2014, which could lead to a gradual increase in interest and investment from international institutional investors in the UAE. Government involvement There is a high degree of state involvement in the UAE banking sector. Most of the larger banks in the UAE have some degree of government ownership. Privatisation, though advocated in principle, has been slow to manifest in practice. The state and its related entities are together the banking sector's largest customers, in terms of both deposits and project financing. Expatriate workforce The UAE is reliant on overseas labour, with the non-national labour force participation rate being 84.1 per cent. for the year ended 31 December 2018 (compared to the national labour force participation rate of 47.2 per cent.) (source: Labour Force Survey, Federal Competitiveness and Statistics Authority). The banking sector is no exception to this and expatriates are employed in senior management of most of the major banks. This has brought expertise from more developed markets to the sector. However, to ensure increased representation of Emiratis in the UAE financial sector (overall as well as in critical roles) and to support their professional development, the Central Bank has introduced a point based scoring system in 2017 as part of its Emiratisation policy, which takes into account the employment and progression of Emirati employees in the organisation in order to encourage the development and deployment of UAE nationals in critical roles at a variety of levels. Accounting standards Since 1 January 1999, all UAE banks have been required to prepare their financial statements in accordance with IFRS. Although this has led to a substantial improvement in disclosure standards, there remains some variability in the quality and depth of disclosure across the banking sector. Legal environment There are three primary sources of law in the UAE: (i) federal laws and decrees; (ii) local laws; and (iii) Shari'a (Islamic) law. In addition, Emiri decrees can be issued by the Rulers of each of the Emirates which, when issued, have full legal effect and operation in such Emirate. The secondary form of law is trade custom or practice. In the absence of federal legislation on areas specifically reserved to federal authority, the Ruler of a given Emirate or local government will apply his or its own rules, regulations and practices. Recent Trends in Banking COVID-19 In 2020, the macro-economic environment (both globally and within the UAE) has been materially affected by the COVID-19 outbreak. As a result of the economic challenges resulting from the COVID-19 outbreak, credit quality may deteriorate quickly and in excess of existing models for ECL, markets may be highly volatile and there may be a significant drop in overall liquidity levels globally. Although the Central Bank has taken a number of steps to minimise such impact, there can be no assurance as to whether or how quickly the macro-economic environment will recover. Further, such measures may also affect the banking sector adversely. For further information, please see "Risk Factors – Risk Factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – COVID-19 outbreak" and "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Targeted Economic Support Scheme". In addition to such measures, the HSA issued Resolution No.82/2/2020 concerning COVID-19, and in May 2020, a Joint Guidance on the Treatment of Financial Crime Risks and Obligations in the UAE in the context of the Covid-19 Crisis was issued by the Central Bank, the Dubai Financial Services Authority, the ADGM Financial Services Regulatory Authority, the UAE Securities and Commodities Authority, the Insurance Authority, the UAE Ministry of Justice and the UAE Ministry of Economy. The purpose of this joint guidance is to work with financial institutions and designated non-financial businesses and professions - 120 -
133. to support the provision of COVID-19 aid and containment efforts whilst remaining vigilant to new and emerging financial crime risks . Targeted Economic Support Scheme On 1 March 2020, the Central Bank issued a circular advising banks to implement measures to mitigate the effects of the COVID-19 outbreak on the UAE economy. These measures include re-scheduling of loan and financing contracts, temporary deferrals on monthly loan and financing payments and reduction of fees and commissions for affected customers (although banks are expected to remain fully responsible for their credit decisions). Following this, the Central Bank announced a stimulus package of AED 100.0 billion through TESS (effective from 15 March 2020) to ensure ample liquidity in the local banking sector and in order to support the economy. Measures under TESS and other accompanying stimulus measures include (in addition to the reduction of interest rates as discussed in "Risk Factors – Risk Factors relating to the Group's business activities – COVID-19 outbreak"): • allowing banks operating in the UAE access to loans, financings and advances, against collateral, extended at zero cost by the Central Bank until 31 December 2020, the proceeds of which are to be used by UAE banks to grant temporary relief to private sector corporate customers and retail clients; • whilst keeping the existing 2.50 per cent. capital conservation buffer and the domestic systematically important bank ("DSIB") buffers in place, allowing banks to utilise 60 per cent. of their capital conservation buffer and 100 per cent. of their DSIB buffer without supervisory consequences until 31 December 2021, subject to having fully utilised the limit available under the zero cost facility of TESS; • allowing banks that are subject to regulatory liquidity coverage ratio (the "LCR") requirements to fall below the regulatory LCR requirement of 100 per cent. provided that their LCR is higher than or equal to 70 per cent, while other banks are able to fall below the regulatory eligible liquid assets ratio (the "ELAR") requirement of 10 per cent. provided that their ELAR is higher than or equal to 7 per cent., with such changes to the LCR and ELAR applicable until 31 December 2021, subject to having fully utilised the limit available under the zero cost facility of TESS; • directing banks to offer payment deferral relief to private sector corporates, SMEs and individuals affected by COVID-19; • expecting banks to leave unchanged and not downgrade the IFRS 9 staging and classification of customers at stage 1 who are receiving temporary relief linked to TESS; • decreasing the Central Bank's minimum reserve requirement for all current, call and savings deposits from 14 per cent. to 7 per cent.; • postponing the planned implementation of certain Basel III capital requirements until 31 March 2021; and • enabling banks to apply a prudential filter to IFRS 9 expected loss provisions. The prudential filter will allow any increase in IFRS 9 provisioning compared to 31 December 2019 to be partially added back to regulatory capital. This will allow IFRS 9 provisions to be gradually phased-in over a five year period until 31 December 2024. Profitability The UAE continues to strive towards increasing economic diversification away from the oil and gas sector. Nevertheless, with the oil and gas sector being a significant contributor to the UAE's GDP (see further "The United Arab Emirates Banking Sector and Regulations – Characteristics of the Banking System – Exposure to the oil sector"), the price of oil has a direct impact on government fiscal revenues and the level of investment in government projects. The high oil prices and strong economic conditions experienced in the UAE between 2004 and 2008 allowed UAE banks to expand significantly. However, much of this growth focused on the real estate sector and equity financing which, in the context of the 2008 global financial crisis, represented a significant risk - 121 -
134. to the UAE banking system . During 2008 to 2010, a number of banks were also affected by the impact of mark to market accounting rules on their international investment portfolios. Additionally, the UAE economy was negatively impacted by the 2008 global economic downturn and, in particular, by the sharp correction in the price of oil, which affected a number of key economic sectors including trade, tourism, real estate and commerce. This economic slowdown, along with reduced levels of liquidity in the market, constrained lending and resulted in the majority of UAE banks being less profitable in this period than in previous years. With the improvement in global and regional economic growth, better liquidity conditions and higher foreign direct investment, the banking sector in the UAE had recovered well by the end of 2019 and continued to generate profits, albeit at a more moderate and sustainable pace. Regulatory developments and increased compliance requirements also moderated growth in the profitability of the UAE banking sector. In 2020, the macro-economic environment (both globally and within the UAE) has been materially affected by the COVID-19 outbreak (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – COVID-19"). Liquidity The Central Bank closely monitors the level of liquidity in the banking system. It also requires that banks have in place adequate systems and controls to manage their liquidity positions, as well as contingency funding plans to cope with periods of liquidity stress. Banks must also adhere to a maximum financings/loan to deposit ratio of 100 per cent. set by the Central Bank. In this context, loans comprise financings/loans and advances to customers and interbank assets maturing after three months. UAE banks are mostly funded through on demand- or time-based customer deposits made by private individuals or private sector companies based in the UAE. As at 31 March 2020, demand- and time-based deposits constituted 88.0 per cent. of total deposits of the UAE banking sector (excluding government deposits, commercial prepayments and borrowings/funding under repurchase agreements), resident deposits constituted 88.3 per cent. of total deposits of the UAE banking sector (excluding interbank deposits and bank drafts but including commercial prepayments and borrowings/funding under repurchase agreements) and government and government-related entity deposits constituted approximately 31.5 per cent. of total resident deposits within the UAE banking sector (excluding interbank deposits but including commercial prepayments and borrowings/funding under repurchase agreements) (source: Statistical Bulletin March 2020 (preliminary data), Central Bank). In response to the 2008 global financial crisis, the Central Bank announced a number of measures aimed at ensuring that adequate liquidity is available to banks operating in the UAE. In September 2008, the Central Bank established an AED 50.0 billion liquidity facility which banks can draw upon subject to posting eligible debt securities as collateral. The liquidity facility is available only for the purpose of funding existing commitments. New lending/financing is required to be based on growth in the customer deposit base. The Central Bank also established a CD repo facility under which banks can use CDs as collateral for dirham or U.S. dollar funding from the Central Bank. In addition to these measures, the UAE Federal Government also provided AED 50.0 billion in deposits to UAE banks (as part of a larger AED 70.0 billion package) which, at the option of the banks, can be converted into Tier 2 capital in order to enhance capital adequacy ratios. A number of banks in the UAE exercised this option and converted the UAE Federal Government deposits made with them into Tier 2 capital. During 2008, Government-owned institutions assisted certain Abu Dhabi banks in strengthening their capital base through the subscription of mandatory convertible securities and, in February 2009, the Government of Abu Dhabi (acting through the Department of Finance) subscribed for, in aggregate, a sum of AED 16.0 billion in subordinated Tier 1 capital notes issued by the five largest Abu Dhabi banks: Abu Dhabi Commercial Bank PJSC, Abu Dhabi Islamic Bank PJSC, First Gulf Bank PJSC (now First Abu Dhabi Bank PJSC following its merger with National Bank of Abu Dhabi PJSC), National Bank of Abu Dhabi PJSC (now First Abu Dhabi Bank PJSC following its merger with First Gulf Bank PJSC) and Union National Bank PJSC. - 122 -
135. In 2009 , the Department of Finance of the UAE Federal Government established a U.S.$20.0 billion funding programme and the first tranche, valued at U.S.$10.0 billion with a five year tenure and paying a coupon rate of four per cent. per annum, was issued in its entirety to the Central Bank. In November 2009, a second U.S.$5.0 billion tranche was fully subscribed equally by Al Hilal Bank PJSC and National Bank of Abu Dhabi PJSC. In line with Basel III requirements, the Central Bank has issued Central Bank Notice No. 33/2015 on liquidity requirements (which was issued by the Central Bank on 27 May 2015 and which was effective from 1 July 2015, replacing Central Bank Notice No. 30/2012) (the "Liquidity Notice"). The Liquidity Notices includes a set of qualitative and quantitative liquidity requirements for UAE banks. The qualitative requirements elaborate on the responsibilities of a UAE bank's board of directors and senior management as well as the overall liquidity risk management framework. These regulations are intended to ensure that liquidity risks are well managed at banks operating in the UAE and are in line with the Basel Committee's recommendations and international best practices. These requirements include the following: Responsibilities of the board of directors • to bear ultimate responsibility for liquidity risk management within the relevant UAE bank; • to be familiar with liquidity risk management with at least one board member having a detailed understanding of liquidity risk management; and • to ensure the clear articulation of liquidity risk tolerance in line with the relevant UAE bank's objectives, strategy and risk appetite. Responsibilities of senior management • to develop strategies, policies and practices to manage liquidity risk in accordance with the liquidity risk tolerance set by the board of directors; • to review the UAE bank's strategy and to report to the board of directors on regulatory compliance on a regular basis; and • to manage liquidity risk in a prudent manner using all available liquidity risk management tools. Liquidity risk management framework The Liquidity Notice requires each UAE bank to have a robust liquidity risk management framework which comprises the following elements: • sound processes and systems to identify, measure, monitor and control liquidity risk in a timely and accurate manner; • a robust liquidity risk management framework (which must be shared with the Central Bank upon request) with limits, warning indicators, communication and escalation procedures; • regular internal stress testing of the portfolio for a variety of scenarios (both institution specific and market-wide); results being communicated to the board of directors and the Central Bank on request; • incorporation of liquidity costs, benefits and risks into product pricing and approval processes; • establishment of a forward-looking funding strategy with effective diversification of funding sources and tenors; • setting of formal contingency funding plans which clearly set out strategies for addressing liquidity shortfalls in emergency situations (and which must be shared with the Central Bank upon request); • establishment of an adequate cushion of unencumbered, highly liquid assets as insurance against a range of liquidity stress scenarios; and - 123 -
136. • a transfer pricing framework (which is commensurate with the bank's liquidity risk tolerance and complexity) developed to reflect the actual cost of funding. The quantitative requirements set out in the Liquidity Notice are intended to ensure that each UAE bank holds a minimum level of liquid assets which allow it to sustain a short-term liquidity stress (in circumstances both specific to that bank and market wide). In particular, the requirements include two interim ratios which were intended to apply until the Basel III LCR and net stable funding ratio (the "NSFR") come into effect. These include the following: Ratio Interim ratios: Basel III ratios: Applicability period Eligible Liquid Assets Ratio (ELAR > = 10%) 1 July 2015 until LCR implementation for approved banks Advances to Stable Resources Ratio (ASRR < 100%) 30 September 1986 until implementation for approved banks Liquidity Coverage Ratio (LCR > 100%) Effective transition from 1 January 2016 for approved banks Net Stable Funding Ratio (NSFR < 100%) Effective January 2018 for approved banks NSFR The Central Bank's ELAR was an interim ratio which was designed to apply pending the LCR becoming effective (as described below). Under the ELAR, UAE banks were required to hold an amount equivalent to at least 10 per cent. of their liabilities in high quality liquid assets (including cash held with the Central Bank, the Central Bank CDs and certain UAE local government and public sector entity publicly traded instruments). The Liquidity Notice also included the option for UAE banks to apply to the Central Bank to move to assessment and reporting of bank liquidity to the Central Bank as against the LCR, in addition to the ELAR, with effect from 1 January 2016. Any UAE banks taking up this option were required to comply only with the ELAR until 1 January 2016, after which date they were required to move to a dual- compliance regime as to liquidity as against the ELAR and the LCR (subject to receipt of Central Bank approval). The LCR represents a 30 days stress scenario with combined assumptions covering both bank specific and market wide stresses. These assumptions are applied to contractual data representing the main liquidity risk drivers at banks to determine cash outflows within the 30 days stress scenario. The LCR requires that UAE banks should always be able to cover the net cash outflow with high-quality liquid assets ("HQLAs") at the minimum LCR determined by the Central Bank. The Basel III accord requires that this minimum is 100 per cent. The Liquidity Notice describes in detail eligible HQLAs for this purpose. As part of the Central Bank's gradual implementation of the Basel III reforms in the UAE, the Central Bank introduced LCR in a phased manner, setting an initial benchmark of 60 per cent. upon commencement of LCR compliance, increasing to 100 per cent. as of 1 January 2019. This graduated approach was designed to ensure that the LCR could be introduced without disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity in the UAE. The advances to stable resources ratio (the "ASRR") is an interim ratio which applies to UAE banks until they become subject to the NSFR (as described below). The ASRR identifies key uses of funds as well as the different types of funding sources used by banks. It assigns stability factors to the sources of funds and required stable funding (usage) factors to asset classes. After applying the relevant factors, the net uses of funds is divided by the net sources of funds and the result should be less than 100 per cent. The NSFR is a structural ratio that aims to ensure that banks have adequate stable funding to fund the assets on their balance sheets. It also requires an amount of stable funding to cover a portion of the relevant UAE banks contingent liabilities. The NSFR in the UAE mirrors the Basel III NSFR standard. The NSFR identifies the key uses of funds and the different types of funding sources used by the UAE banks. It assigns available stable funding ("ASF") factors to the sources of funds and required stable funding (usage) factors to asset classes and off balance sheet contingent exposures. The assigned ASF factor depends on the terms of funding and the perceived stability of the funding sources. The assigned ASF factor will depend on the liquidity of the asset being funded under a market-wide stress. Both factors will follow the Basel III NSFR standard. - 124 -
137. As part of its response to the COVID-19 outbreak , the Central Bank has implemented TESS which includes certain interim liquidity easing measures (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Targeted Economic Support Scheme"). Interim Marginal Lending Facility On 15 April 2014, the Central Bank introduced the IMLF which allows non-Islamic UAE banks to use certain rated or UAE Federal Government entity-issued assets to access Central Bank liquidity overnight in order to help their liquidity management during times of market stress. The IMLF allows lenders to use certain assets as collateral to obtain one-day overnight loans from the Central Bank. Eligible assets that can be used as collateral must be tradeable and include bonds, sukuk and securities issued by the UAE Federal Government or government-related entities in individual Emirates, as well as by UAE banks and corporations. Securities issued by foreign governments, banks, corporates and supranational agencies can also be used as collateral, but must carry a minimum 'A' credit rating from one of the three main international rating agencies. Banks accessing the IMLF must borrow a minimum of AED 10 million and will be charged 100 basis points over the official UAE "Repo Rate". Collateralised Murabaha Facility On 22 June 2011, the Central Bank announced that it would be offering a Collateralised Murabaha Facility to banks in the UAE to provide a source of liquidity to banks. On 22 March 2015, the Central Bank extended the spectrum of "Eligible Collateral" for the existing Collateralised Murabaha Facility to include Shari'a compliant securities (effective from 1 April 2015). Islamic banks operating in the UAE, such as Emirates Islamic, can access funds from the Central Bank on an overnight basis by posting eligible securities as collateral. Position of depositors There is no formal deposit protection scheme in the UAE. While no bank has, so far, been permitted to fail, during the 1980s and early 1990s a number were restructured by the relevant government authorities. In October 2008, in response to the global financial crisis, the UAE Federal Government announced that it intended to guarantee the deposits of all UAE banks and foreign banks with core operations in the UAE and a draft law guaranteeing federal deposits was approved by the UAE's National Federal Council in May 2009. In addition, the 2018 Federal Law provides that the board of directors of the Central Bank may issue regulations for the protection of deposits and the rights of depositors. However, until such time as any such law or regulations are passed, there is no guaranteed government support. Prudential regulations The Central Bank has supervisory responsibility for banking institutions in the UAE. Supervision is carried out through on-site inspections and review of periodic submissions from the banks. The frequency of inspection depends on the perceived risk of the bank, but inspections are carried out in all banks in accordance with the Central Bank's enforcement policy. Prudential returns are made monthly, quarterly, semi-annually or annually, depending on the nature of the information they contain. Capital adequacy All banks are required to follow the principles of the Basel accord in calculating their capital adequacy ratios. Basel II was introduced effective 17 November 2009 by way of Central Bank Circular No. 27/2009. Since 1993, the Central Bank had imposed a 10 per cent. minimum total capital ratio on all UAE banks. In a circular dated 30 August 2009, the Central Bank announced amendments to its capital adequacy requirements, such that UAE banks were required to have a total capital adequacy ratio of at least 11 per cent., with a Tier 1 ratio of not less than 7 per cent., by 30 September 2009. Furthermore, the Central Bank required banks operating in the UAE to increase their Tier 1 capital adequacy ratio to at least 8 per cent., with a minimum total capital adequacy ratio of at least 12 per cent., by 30 June 2010. Thereafter, through its circular dated 17 November 2009 introducing Basel II, the Central Bank stated that it was expected that the main banks in the UAE would move to the Foundation Internal Rating Based approach under Basel II in due course. Through this circular, the Central Bank reiterated that all banks operating in the UAE were required to maintain a minimum capital adequacy ratio of 11 per cent. at all times, increasing to 12 per cent. by 30 June 2010 and also laid out its expectations in relation to Pillar II and Pillar III of the Basel II - 125 -
138. framework . Profits for the current period, goodwill, other intangibles, unrealised gains on investments and any shortfall in financing/loan loss provisions were deducted from regulatory capital. As part of the introduction of Basel III in the UAE, on 23 February 2017 the UAE Central Bank published the "Regulations re Capital Adequacy" (the "February 2017 Regulations") in the Official Gazette issue 612, which were effective from 1 February 2017. The February 2017 Regulations are supported by accompanying standards, including the Standard for Capital Adequacy of Banks in the UAE issued on 7 January 2020 (the "Capital Standards"). The Capital Standards elaborate on the supervisory expectations of the UAE Central Bank, as set out in the February 2017 Regulations, with respect to the relevant Basel III capital adequacy requirements and how they will be applied by the UAE Central Bank to banks in the UAE. Emirates Islamic is required by the Central Bank to maintain a minimum total capital adequacy ratio of 13.0 per cent. Whilst the calculation of capital adequacy ratios in the UAE follows the Bank of International Settlements guidelines, claims on or guaranteed by GCC central governments and central banks are risk-weighted at zero per cent. (where applicable) and claims on GCC government non-commercial public sector entities are risk-weighted in accordance with the prescribed guidelines. As part of its response to the COVID-19 outbreak, the Central Bank has implemented TESS which includes certain interim capital adequacy easing measures (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Targeted Economic Support Scheme"). Reserve requirements Reserve requirements are used by the Central Bank as a means of prudential supervision and to control credit expansion. The reserve requirements set a mandatory cash reserve of 14 per cent. of all current, call and savings deposits and 1 per cent. of all time deposits, respectively, based on balances calculated on the 15th of each month. As part of its response to the COVID-19 outbreak, the Central Bank has implemented TESS which includes certain interim required reserve easing measures (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Targeted Economic Support Scheme"). Credit controls Banks are required by the Central Bank to establish credit policies and procedures commensurate with their size and activities. They must also have a proper credit assessment and approval process and adequate controls in place to monitor credit concentrations to, among others, individual borrowers/obligors, economic sectors and foreign countries. Central Bank circular on retail banking dated 23 February 2011 (the "Retail Circular") and Notice No. 31/2013 dated 28 October 2013 (which was published in the Official Gazette on 28 November 2013 and was effective from 28 December 2013 and was subsequently amended via Central Bank Notice No. 1799/2020 on 8 April 2020) (the "Mortgage Regulations") introduced regulations regarding bank loans and other services offered to individual customers. These regulations, among other things, impose maximum loan or financing/income and loan or financing to value ratios for retail products. For example, the Retail Circular requires that the amount of any personal consumer loan/finance shall not exceed 20 times the salary or total income of the borrower/obligor with the repayment period not exceeding 48 months. The Mortgage Regulations provide that the amount of mortgage loans/financings for non-nationals should not exceed 80 per cent. of the property value for a first purchase of a home with a value of less than AED 5 million and, for a first purchase of a home with a value greater than AED 5 million, should not exceed 70 per cent. of the property value. For the purchase of a second or subsequent home, the limit for non-nationals is set at 60 per cent. of the property value (irrespective of the value of the property in question). The corresponding limits for UAE nationals are set at 85 per cent. in respect of a first purchase of a home with a value less than or equal to AED 5 million, 75 per cent. for a first home with a value greater than AED 5 million and 65 per cent. of the property value for a second or subsequent purchase (irrespective of the value of the property). - 126 -
139. Large exposures The Central Bank defines large exposures as any funded or unfunded exposures (less provisions, cash collaterals and deposits under lien) to a single borrower/obligor or group of related borrowers/obligors exceeding prescribed limits. On 11 November 2013, the Central Bank published Central Bank Notice No. 32/2013 on large exposures (the "Large Exposure Notice") amending certain of the large exposure limits set out above. The Large Exposure Notice was published in the Official Gazette on 30 December 2013 and entered into force on 30 January 2014. The Large Exposure Notice introduced new limits of 100 per cent. of the bank's capital base for all lending/financing to UAE local governments and their non-commercial entities, together with a 25 per cent. limit to any single such non-commercial entity. Exposures above these limits are subject to approval by the Central Bank. Set out below is a table setting out the exposure limits prescribed by the Large Exposure Notice (defined as a percentage of the bank's capital base calculated under Basel II): UAE Federal Government and its non-commercial entities UAE local government and its non-commercial entities ..... Commercial entities of UAE Federal Government and UAE local government .................................................... Commercial or other (non-commercial) private sector entities and individuals .................................................... Shareholders who own 5% or more of the bank's capital and related entities ........................................................... Exposure to bank's subsidiaries and affiliates ...................... Board members ................................................................... Individual Exempt No cap for UAE local government; 25% for each noncommercial entity 25% Aggregate Exempt 100% 25% max None 20% 50% 10% 5% 25% 25% 100% Provisions for loan/financing losses For UAE banks, IFRS 9 was introduced for financial reporting periods commencing on 1 January 2018, replacing IAS 39 and introducing an ECL model for the measurement of the impairment of financial assets such that it is no longer necessary for a credit event to have occurred before a credit loss is recognised. The guiding principle of the ECL model is to reflect the general pattern of deterioration or improvement in the credit quality of financial instruments. IFRS 9 provision uses a three stage approach in recognising increased credit risk at each stage of risk (i.e., stage 1 for current facilities, stage 2 for significant increase in credit risk and stage 3 for impaired loans/financing). As part of its response to the COVID-19 outbreak, the Central Bank has implemented TESS which allows any increase in IFRS 9 provisioning compared to 31 December 2019 to be partially added back to regulatory capital (see further "The United Arab Emirates Banking Sector and Regulations – Recent Trends in Banking – Targeted Economic Support Scheme"). Establishing a credit bureau in the UAE Al Etihad Credit Bureau (the "AECB") is a UAE Federal Government company specialised in providing UAE-based credit reports and other financial information. AECB commenced operations in 2014 upon receiving formal approval from the UAE Cabinet of its regulations and its charges for producing credit reports. AECB has approached all UAE-based banks to sign data sharing agreements to enable the provision of customer credit information, with the majority having entered into such agreements and/or made successful initial data submissions to AECB by the time AECB commenced operations. - 127 -
140. SUMMARY OF THE PRINCIPAL TRANSACTION DOCUMENTS The following is a summary of certain provisions of the principal Transaction Documents and is qualified in its entirety by reference to the detailed provisions of the principal Transaction Documents . Capitalised terms not defined in this section have the meaning given to such term in the Conditions and/or the Transaction Documents. Copies of the Transaction Documents will be available for inspection as set out under "General Information – Documents Available". Master Purchase Agreement, as supplemented by each Supplemental Purchase Agreement The Master Purchase Agreement will be entered into on or around the date of this Base Prospectus between the Trustee (in its capacity as purchaser, the "Purchaser") and the Obligor (in its capacity as seller, the "Seller") and will be governed by the laws of Dubai and, to the extent applicable in Dubai, the federal laws of the UAE. A Supplemental Purchase Agreement between the same parties will be entered into on the Issue Date of each Tranche and will also be governed by the laws of Dubai and, to the extent applicable in Dubai, the federal laws of the UAE. Pursuant to each Supplemental Purchase Agreement, the Seller will sell to the Purchaser, and the Purchaser will purchase from the Seller the Initial Wakala Portfolio together with the transfer and assignment by the Seller to the Purchaser of all of the Seller's rights, title, interests, benefits and entitlements, present and future, in, to and under the Initial Wakala Assets which comprise the Initial Wakala Portfolio for the Purchase Price. Service Agency Agreement The Service Agency Agreement will be entered into on or around the date of this Base Prospectus between the Trustee and the Obligor (in its capacity as Service Agent) and will be governed by English law. Pursuant to the Service Agency Agreement, the Trustee will appoint the Service Agent to service the Sukuk Portfolio relating to each Series. In particular, the Service Agent will, in relation to each Series, perform, amongst other things, the following services (the "Services") as agent of the Trustee, during the Ownership Period: (a) it shall complete the Service Agency Scope on the Issue Date for the first Tranche under that Series; (b) if the Trustee issues Additional Certificates in accordance with Condition 21 (Further Issues) in respect of an existing Series, it shall as soon as practicable after such issuance amend the Service Agency Scope for that Series to take into account the issuance of such Additional Certificates; (c) it shall provide certain services in respect of the relevant Sukuk Portfolio in accordance with the Service Agency Scope and the terms of the Service Agency Agreement; (d) it shall ensure that: (i) on the Issue Date of the first Tranche of the relevant Series, the Value of the Wakala Assets comprised in the Wakala Portfolio shall be equal to no less than 51 per cent. of the face amount of the Certificates for that Series; (ii) on the Issue Date of the first Tranche of the relevant Series, the Deferred Sale Price under a Murabaha Contract shall be equal to no more than 49 per cent. of the face amount of the Certificates for that Series; and (iii) at all times after the Issue Date of the first Tranche of the relevant Series, the Value of the Wakala Assets comprised in the Wakala Portfolio shall be equal to no less than 51 per cent. of the Sukuk Portfolio Value (the "Tangible Ratio Requirement"). Should the Service Agent, exercising its best endeavours, fail to procure satisfaction of the Tangible Ratio Requirement, it shall immediately take all such steps necessary (including, without limitation, seeking guidance from the EI Internal Shari'a Supervision Committee) to procure the satisfaction of the Tangible Ratio Requirement. If the failure to procure satisfaction of the Tangible Ratio Requirement continues for whatever reason to the extent that less than 33 per cent. of the Sukuk Portfolio Value is derived from Wakala - 128 -
141. Assets at any time , it shall take any such measures as advised by the EI Internal Shari'a Supervision Committee. For the avoidance of doubt, a failure by the Service Agent to comply with the obligations of this paragraph shall not constitute a Dissolution Event; (e) it shall use its reasonable endeavours, in the event that there are Principal Revenues standing to the credit of the Principal Collection Account which are not to be promptly transferred to the Transaction Account: (i) to the extent that Emirates Islamic Bank PJSC has Eligible Wakala Assets available for sale to the Trustee, apply amounts standing to the credit of the Principal Collection Account to purchase the Eligible Wakala Assets on behalf of the Trustee as selected by Emirates Islamic Bank PJSC (for a purchase price not less than the Value of such Eligible Wakala Assets); and (ii) provided that, to the extent that Emirates Islamic Bank PJSC does not have any Eligible Wakala Assets available for sale, the Service Agent may apply such amounts standing to the credit of the Principal Collection Account to invest in Shari'a-Compliant Deposits provided that such Shari'a-Compliant Deposits are liquidated as soon as reasonably practicable if Eligible Wakala Assets become available for purchase by and on behalf of the Trustee; (f) it shall discharge or procure the discharge of all obligations to be discharged by the Trustee in respect of any of the Wakala Assets, it being acknowledged that the Service Agent may appoint one or more agents to discharge these obligations on its behalf; (g) it shall pay on behalf of the Trustee any actual costs, expenses, losses and Taxes which would otherwise be payable by the Trustee as a result of the Trustee's ownership of the Wakala Assets; (h) it shall use its reasonable endeavours to ensure the timely receipt of all Revenues (free and clear of, and without withholding or deduction for, Taxes); (i) in respect of the relevant Distribution Period for each Series, it shall collect Income Revenues but shall not be required to ensure that such Income Revenues are at least equal to the Expected Income Revenues Amount; (j) it shall maintain the Principal Collection Account, the Income Collection Account and the Reserve Account, in each case in accordance with the Service Agency Agreement; (k) if, following payment of amounts standing to the credit of the Reserve Account as described below, a Shortfall Amount remains on any Distribution Determination Date, it may at its discretion provide Shari'a-compliant funding to the Trustee, or procure Shari'a compliant funding from a third party to be paid to the Trustee, to the extent necessary to ensure that the Trustee receives on each Distribution Determination Date the Required Amount payable by it in accordance with the Conditions of the relevant Series on the immediately following Periodic Distribution Date, by payment of the same into the Transaction Account and on terms that such funding is repayable on each Distribution Determination Date or the relevant Dissolution Date in accordance with the Service Agency Agreement (such funding in relation to a Series, a "Liquidity Facility"); (l) it shall notify the Trustee promptly if any Wakala Asset comprised in the Wakala Portfolio of the relevant Series ceases to be an Eligible Wakala Asset, (the occurrence of such event or circumstance being an "Impaired Wakala Asset Event"); and (m) it shall, together with any notice delivered in accordance with paragraph (l) above, notify the Trustee of the availability (if any), together with all necessary details, of any Eligible Wakala Assets for the purposes of substituting the Wakala Asset in respect of which an Impaired Wakala Asset Event has occurred in accordance with the terms of the Purchase Undertaking. In relation to each of the Ijara Assets comprised in a Wakala Portfolio of a Series, the Service Agent shall: - 129 -
142. (a) ensure that such Ijara Assets are insured at all times against total loss and expropriation in an amount at least equal to the Value of that Ijara Asset (the "Insurance Coverage Amount") and that such insurance policies are maintained on a Shari'a compliant takaful basis and with reputable insurers in good financial standing; and (b) direct that, in the event of a total loss or expropriation of any such Ijara Assets, the insurance policies relating to such Ijara Assets provide for an amount at least equal to the Insurance Coverage Amount of the relevant Ijara Asset to be paid to the Service Agent, for credit by the Service Agent to the Principal Collection Account in the Specified Currency by no later than close of business on the date falling ninety (90) calendar days after the occurrence of such total loss or expropriation. Without prejudice to the requirements of the next paragraph, for the avoidance of doubt, a failure by the Service Agent to comply with the obligations of the above paragraph shall not constitute a Dissolution Event and the sole remedy of the Trustee for any failure by the Service Agent to comply with the provisions of the above paragraph shall be to claim against the Service Agent for any Insurance Shortfall Amount pursuant to the provisions set out in the following paragraph. In the event that the relevant insurance company fails to pay the Insurance Coverage Amount relating to an Ijara Asset to the Service Agent, by crediting such amount to the Principal Collection Account, within 90 calendar days of a total loss or expropriation of that Ijara Asset and the Service Agent is unable to prove that it complied with all of its obligations under the above paragraph or where the Service Agent has failed to maintain or ensure the maintenance of any insurances over the Ijara Assets in breach of its obligations under the above paragraph: (a) the Service Agent acknowledges that it shall have failed to comply with its obligations set out in the above paragraph; and (b) the Service Agent irrevocably and unconditionally undertakes to pay in the Specified Currency on the 91st calendar day after the occurrence of the total loss or expropriation, in same day funds (free and clear of any withholding or deduction or any set off or any counterclaim), an amount equal to the difference between the insurance proceeds credited to the Principal Collection Account (if any) and the Insurance Coverage Amount, in each case, in respect of the relevant Ijara Asset, directly into the Principal Collection Account (the "Insurance Shortfall Amount"), unless the Service Agent can unequivocally prove no later than the 90th calendar day after the occurrence of the total loss or expropriation to the satisfaction of the Trustee (acting in its sole and absolute discretion) that any such loss or expropriation is not attributable to the Service Agent's negligence or its failure to comply with its obligations set out in the above paragraph. The Service Agent shall provide the Services in relation to the Sukuk Portfolio in accordance with all applicable laws and regulations and in accordance with generally accepted Shari'a principles. The parties to the Service Agency Agreement have also agreed that in the event that: (i) the Trustee has exercised its rights under Condition 21 (Further Issue) to issue an additional Tranche of Certificates under an existing Series; and (ii) in connection with such additional Tranche, the Trustee and the Obligor have entered into (A) an Additional Assets Sale Agreement pursuant to which the Obligor has sold to the Trustee all of its rights, title, interest and benefit in and to certain Additional Assets, and/or (B) a Commodity Murabaha Investment pursuant to the Master Murabaha Agreement, any such Additional Assets shall, on the date of that Additional Assets Sale Agreement, be automatically, without any further action on the part of any party, commingled with the existing Wakala Portfolio of the relevant Series and the existing Wakala Assets together with such Additional Assets shall comprise the Wakala Portfolio of that Series, and will be commingled together with any new and/or existing Commodity Murabaha Investment to form the Sukuk Portfolio for that Series. The Service Agent shall be entitled to receive a fee for acting as service agent which will comprise a fixed fee of U.S.$100 (the adequacy of which will be acknowledged by the Service Agent under the Service Agency Agreement) and may also receive incentive payments as described below. In relation to each Series, the Service Agent will maintain three book-entry ledger accounts (such accounts being the "Principal Collection Account", the "Income Collection Account" and the "Reserve Account") in its books in which all Revenues will be recorded. All Revenues in relation to each Series will be recorded: - 130 -
143. (a) if any such amounts comprise Income Revenues, in the Income Collection Account; and (b) if any such amounts comprise Principal Revenues, in the Principal Collection Account. The Service Agent will be entitled to deduct amounts standing to the credit of the Income Collection Account of each Series at any time during the relevant Ownership Period and to use such amounts for its own account, provided that any Income Revenues so deducted are re-credited to the Income Collection Account on or prior to each relevant Distribution Determination Date for the purposes of application by the Service Agent as set out below. Amounts standing to the credit of the Income Collection Account of each Series will be applied by the Service Agent on each "Distribution Determination Date" (being the Business Day immediately prior to the relevant Periodic Distribution Date under the Certificates of the relevant Series) in the following order of priority: (a) first, in payment to the Service Agent on behalf of the Trustee of any Service Agent Liabilities Amounts for the Distribution Period ending on the immediately following Periodic Distribution Date and (if applicable) any Service Agent Liabilities Amounts for any previous Distribution Period that remain unpaid; (b) second, in repayment to the Service Agent of any amounts advanced by it to the Trustee by way of a Liquidity Facility; (c) third, in payment into the Transaction Account an amount equal to the Required Amount payable on the Periodic Distribution Date falling one Business Day after such Distribution Determination Date; and (d) fourth, to the Reserve Account. Amounts standing to the credit of the Reserve Account of each Series shall be applied by the Service Agent as follows: (a) if there will be a shortfall on a Distribution Determination Date (after payment into the Transaction Account of the relevant amount in accordance with the above paragraph) between: (i) the amount standing to the credit of the Transaction Account; and (ii) the Required Amount payable on the Periodic Distribution Date falling one Business Day after such Distribution Determination Date (the difference between such amounts being referred to in this Agreement as a "Shortfall Amount"), by paying into the Transaction Account on that Distribution Determination Date from the amounts standing to the credit of the Reserve Account (if any) an amount equal to the Shortfall Amount (or such lesser amount as is then standing to the credit of the Reserve Account); (b) the Service Agent will be entitled to deduct amounts standing to the credit of the Reserve Account at any time during the Ownership Period and use such amounts for its own account, provided that such amounts shall be immediately repaid by it if so required to fund a Shortfall Amount in accordance with the above sub-paragraph; and (c) following payment of all amounts due and payable under the Certificates of a Series, the Service Agent shall be entitled to retain any amounts that remain standing to the credit of the Reserve Account of that Series for its own account as an incentive payment for acting as Service Agent. The Service Agent will agree in the Service Agency Agreement that all payments by it under the Service Agency Agreement must be made without any deduction or withholding for or on account of any present or future Taxes imposed by the Relevant Jurisdictions unless required by law and without set-off or counterclaim of any kind. If there is any such deduction or withholding, the Service Agent shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no withholding or deduction had been made and accordingly the Service Agent undertakes to pay to the Trustee or such other persons as the Trustee may direct such additional amounts forthwith upon demand and in the manner and currency prescribed hereunder. The Service Agent will further agree in the Service Agency Agreement that its payment obligations under the agreement will be direct, unsubordinated and unsecured obligations of the Service Agent and shall, save for such exceptions as may be provided by applicable legislation and subject to the negative pledge - 131 -
144. provisions described in Condition 5 (Negative Pledge), at all times rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of the Service Agent, present and future. Sale Undertaking The Sale Undertaking will be executed as a deed on or around the date of this Base Prospectus by the Trustee in favour of Emirates Islamic Bank PJSC (in such capacity, "EI") and will be governed by English law. In relation to each Series, the Trustee will irrevocably grant to EI each of the following rights: (a) provided that a Tax Event has occurred and the Trustee has delivered to the Principal Paying Agent (with a copy to Obligor): (i) a certificate signed by a director of the Trustee; and (ii) an opinion of independent legal advisers of recognised standing, in each case, in accordance with Condition 12.2 (Early Dissolution for Tax Reasons), to require the Trustee to sell, transfer and convey to EI on the Early Tax Dissolution Date specified in the relevant Exercise Notice all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the relevant Wakala Portfolio at the Exercise Price; (b) following delivery of the Cancelled Certificates (as defined in the Sale Undertaking) to the Trustee for cancellation pursuant to Condition 12.7 (Purchase and Cancellation), to require the Trustee to assign, transfer and convey to the Obligor on the Cancellation Date (as defined in the Sale Undertaking) all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the Cancellation Wakala Assets, provided that: (i) no Dissolution Event has occurred and is continuing in respect of the relevant Series; (ii) the Cancellation Wakala Assets are of a Value which is not greater than the aggregate face amount of the Cancelled Certificates less the Cancellation Amount (as defined in the Sale Undertaking); (iii) in respect of the Cancellation Wakala Assets (or any of them) no Exercise Notice has been delivered under the Sale Undertaking nor has any Purchase Undertaking Exercise Notice (as defined in the Sale Undertaking) been delivered under the Purchase Undertaking; (c) provided that Optional Dissolution (Call) Option is specified as applicable in the applicable Final Terms of a Series, to require the Trustee, at any time prior to the relevant Optional Dissolution Date, to sell, transfer and convey to EI on the Optional Dissolution Date specified in the Exercise Notice all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the relevant Optional Call Wakala Assets at the Optional Call Exercise Price; (d) provided that the Trustee has issued additional certificates in accordance with Condition 21 (Further Issues) in respect of an existing Series, to require the Trustee on the Issue Date of the Additional Certificates to request the transfer of all of EI's interests, rights, title, benefits and entitlements, present and future, in, to and under certain additional Eligible Wakala Assets (the "Additional Assets") at the Additional Assets Exercise Price, provided that the Value of the Additional Assets is no less than the Additional Assets Exercise Price; and (e) to oblige the Trustee to sell, transfer and convey on any Substitution Date all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the relevant Substituted Assets in exchange for the transfer and conveyance by EI to the Trustee of all of its interests, rights, title, benefits and entitlements, present and future, in, to and under the relevant New Assets provided that: (i) the aggregate Value of the relevant New Assets is at least equal to the Value of the relevant Substituted Assets immediately prior to such substitution; (ii) the New Assets are Eligible Wakala Assets; (iii) the Tangible Ratio Requirement shall be satisfied immediately following such sale, transfer and conveyance; and (iv) the Substituted Assets shall be either: (1) applied by EI to form part of a wakala portfolio for another issuance under the Programme; or (2) sold by EI to a separate legal entity, - 132 -
145. in each case , on an "as is" basis (without any warranty express or implied as to condition, fitness for purpose, suitability for use or otherwise and if any warranty is implied by law, it shall be excluded to the fullest extent permitted by law) and otherwise on the terms and subject to the conditions of the Sale Undertaking. Purchase Undertaking The Purchase Undertaking will be executed as a deed on or around the date of this Base Prospectus by the Obligor as obligor in favour of the Trustee and the Delegate and will be governed by English law. In relation to each Series, the Obligor will irrevocably grant to the Trustee and the Delegate (on behalf of itself and the Certificateholders) the following rights: (a) provided that a Dissolution Event has occurred and a Dissolution Notice has been delivered in accordance with the Conditions, to require the Obligor to purchase and accept the transfer and conveyance on the Dissolution Event Redemption Date specified in the Exercise Notice of all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the Wakala Portfolio at the Exercise Price; (b) to require the Obligor, on the Maturity Date, to purchase and accept the transfer and conveyance of all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the Wakala Portfolio at the Exercise Price; (c) provided that: (i) Optional Redemption (Investor Put) Option is specified as applicable in the applicable Final Terms of a Series; and (ii) a holder or holders of the relevant Certificates have exercised the Optional Redemption (Investor Put) Option in accordance with the Conditions, to require the Obligor, at any time prior to the relevant Optional Redemption Date, to purchase and accept the transfer and conveyance on the Optional Redemption Date of all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the relevant Optional Put Wakala Assets at the Optional Put Exercise Price; and (d) provided that the Trustee has received notice, or otherwise becomes aware, of the occurrence of an Impaired Wakala Asset Event in accordance with the terms of the Purchase Undertaking or the Service Agency Agreement, to require the Obligor to purchase and accept the transfer and conveyance on the relevant Impaired Wakala Asset Exercise Date of all of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under the relevant Impaired Wakala Assets against the transfer and conveyance to the Trustee of all of the Obligor's interests, rights, title, benefits and entitlements, present and future, in, to and under certain New Assets, in each case, with regard to such Wakala Assets and New Assets, on an "as is" basis (without any warranty express or implied as to condition, fitness for purpose, suitability for use or otherwise and if any warranty is implied by law, it shall be excluded to the fullest extent permitted by law) and otherwise on the terms and subject to the conditions of the Purchase Undertaking. To the extent that the sale and purchase or transfer and assignment pursuant to the Purchase Undertaking of any interest in the Obligor's interests, rights, title, benefits and entitlements, present and future, in, to and under any of the Wakala Assets, the Optional Put Wakala Assets or Impaired Wakala Asset, as the case may be, is not effective in any jurisdiction for any reason, the Obligor will agree in the Purchase Undertaking to: (i) make payment of an amount equal to the purchase price by way of restitution to the Trustee; and (ii) indemnify fully the Trustee for any shortfall between the amount in (i) and the amount required for the purpose of redemption in full of the relevant Certificates of the relevant Series (including any due but unpaid Periodic Distribution Amounts thereunder), and, if applicable, the Trustee shall deliver the relevant Wakala Assets to the Obligor and relinquish any ownership interest or claim that it may have to such assets. The Obligor will agree in the Purchase Undertaking that all payments by the Obligor under the Purchase Undertaking and any Sale Agreement pursuant to the Purchase Undertaking must be made without any deduction or withholding for or on account of any present or future Taxes imposed by the Relevant - 133 -
146. Jurisdictions unless required by law and without set-off or counterclaim of any kind . If there is any such deduction or withholding, the Obligor shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no withholding or deduction had been made and accordingly the Obligor will undertake to pay to the Trustee or such other persons as the Trustee may direct such additional amounts forthwith upon demand and in the manner and currency prescribed under the Purchase Undertaking. The Obligor will further agree in the Purchase Undertaking that its payment obligations under the deed will be direct, unsubordinated and unsecured obligations of the Obligor and shall, save for such exceptions as may be provided by applicable legislation and subject to the negative pledge provisions described in Condition 5 (Negative Pledge), at all times rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of the Obligor, present and future. Master Murabaha Agreement The Master Murabaha Agreement will be entered into on or around the date of this Base Prospectus between the Trustee (in its capacity as seller) and the Obligor (in its capacity as buyer) and will be governed by English law. Pursuant to the Master Murabaha Agreement, and in connection with any Tranche under a Series, the Trustee may enter into a Commodity Murabaha Investment with the Buyer using a portion of the issue proceeds (which, when aggregated with the murabaha profit component, will not be more than 49 per cent. of the issue proceeds of that Tranche) of the relevant Tranche, as specified in the applicable Final Terms. In accordance with the Master Murabaha Agreement, on receipt of a duly completed Notice of Request to Purchase from the Buyer, the Trustee (acting through the Commodity Agent) shall purchase the relevant commodities on the relevant Issue Date from a commodity supplier on a spot basis at the relevant Commodity Purchase Price in the Specified Currency of the relevant Series. Upon completion of the purchase of the commodities by the Trustee in accordance with the Master Murabaha Agreement and the Trustee gaining title thereto and (actual or constructive) possession thereof, the Trustee may deliver to the Buyer a duly completed Offer Notice by no later than 3.00 p.m. London time on the relevant Issue Date. The Buyer will irrevocably and unconditionally undertake in the Master Murabaha Agreement to accept the terms of, countersign and deliver to the Trustee any Offer Notice delivered to it in accordance with the Master Murabaha Agreement and (as a result of the Trustee having acted on the request of the Buyer set out in the Notice of Request to Purchase) purchase the relevant commodities acquired by the Trustee for the relevant Deferred Sale Price by no later than 3.30 p.m. London time on the relevant Issue Date. As soon as the Buyer has accepted the Trustee's offer by countersigning the relevant Offer Notice, a Murabaha Contract shall be created between the Trustee and the Buyer upon the terms of the relevant Offer Notice and incorporating the terms and conditions set out in the Master Murabaha Agreement and ownership of and all risks in and to the relevant commodities shall immediately pass to and be vested in the Buyer, together with all rights and obligations relating thereto. The Buyer will agree in the Master Murabaha Agreement that all payments by it under the Master Murabaha Agreement must be made without any deduction or withholding for or on account of any present or future Taxes imposed by the Relevant Jurisdictions unless required by law and without set-off or counterclaim of any kind. If there is any such deduction or withholding, the Buyer shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no withholding or deduction had been made and accordingly the Buyer will undertake to pay to the Trustee or such other persons as the Trustee may direct such additional amounts forthwith upon demand and in the manner and currency prescribed under the Master Murabaha Agreement. The Buyer will further agree in the Master Murabaha Agreement that any payment obligations of the Buyer under the Master Murabaha Agreement and each Murabaha Contract will be direct, unsubordinated and unsecured obligations of the Buyer and shall, save for such exceptions as may be provided by applicable legislation and subject to the negative pledge provisions described in Condition 5 (Negative Pledge), at all times rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of the Buyer, present and future. - 134 -
147. The Master Trust Deed , as supplemented by each Supplemental Trust Deed The Master Trust Deed will be entered into on or around the date of this Base Prospectus between the Obligor, the Trustee and the Delegate and will be governed by English law. A Supplemental Trust Deed between the same parties shall be entered into on the Issue Date of each Tranche of Certificates and will also be governed by English law. Pursuant to the Master Trust Deed as supplemented by the relevant Supplemental Trust Deed(s) (together, the "Trust Deed"), the Trustee will, in relation to each Series of Certificates, inter alia: (a) hold the relevant Trust Assets on trust absolutely for the relevant Certificateholders as beneficial tenants in common pertaining to the applicable Series pro rata according to the face amount of Certificates of that Series held by each Certificateholder; and (b) act as trustee in respect of the Trust Assets, distribute the income from the Trust Assets and perform its duties in accordance with the provisions of the Trust Deed. The Trustee will irrevocably and unconditionally delegate to the Delegate all of the present and future rights, powers, trusts, authorities and discretions vested in the Trustee by the relevant provisions (as specified in the Master Trust Deed and including but not limited to the authority to request indications from any Certificateholders and the power to make any determinations to be made under the Master Trust Deed) (the "relevant powers"), provided that: (a) no obligations, duties, liabilities or covenants of the Trustee pursuant to the Master Trust Deed or any other Transaction Document shall be imposed on the Delegate by virtue of the delegation of the relevant powers; (b) in no circumstances will the delegation of the relevant powers result in the Delegate holding on trust the Trust Assets; and (c) such delegation of the relevant powers shall not include any duty, power, trust, right, authority or discretion to dissolve the trusts constituted by the Trust Deed following the occurrence of a Dissolution Event or to determine the remuneration of the Delegate. The delegation to the Delegate by the Trustee is intended to be in the interests of the Certificateholders and does not affect the Trustee's continuing role and obligations as trustee for the trusts created pursuant to the Master Trust Deed. The Obligor will undertake in the Master Trust Deed that: (a) it will comply with and perform and observe all the provisions of the Transaction Documents which are expressed to be binding on it. The Trustee and/or the Delegate shall be entitled to enforce its obligations under the Transaction Documents as if the same were set out and contained in the Master Trust Deed, which shall be read and construed as one document with the Certificates. The Trustee shall hold the benefit of this covenant upon trust for itself and the Certificateholders according to its and their respective interests; (b) it shall promptly provide notice (including the reasons therefor and upon request a report on its financial condition) of any material deterioration of its operating condition or fact relating thereto which may interfere with the performance of its duties under any Transaction Document to which it is a party to the Trustee and the Delegate (and, in addition, shall deliver to the Trustee and the Delegate one copy of each annual and (if available) semi-annual financial report and any extraordinary report to its creditors or shareholders produced by it, respectively, promptly after issuance thereof); (c) it will at all times keep proper books of account in relation to its obligations under all Transaction Documents to which it is a party and in respect of the Wakala Assets and shall provide copies of such records upon request to the Trustee or such other person as the Trustee may request in accordance with the terms of the Service Agency Agreement; and (d) in the event that the Trustee fails to comply with any obligation to pay additional amounts pursuant to Condition 13 (Taxation), it will unconditionally and irrevocably (irrespective of the payment of any fee), as a continuing obligation, pay to the Delegate (for the benefit of the Certificateholders) an amount equal to the liability of the Trustee in respect of any and all additional amounts required to be paid by it in respect of the Certificates pursuant to Condition 13 (Taxation). The Obligor will agree in the Master Trust Deed that if it breaches any declaration or undertaking in clause 2.1 of the Purchase Undertaking, or if the Obligor or any administrator, liquidator or receiver of it disputes or challenges the rights, benefits and entitlements of the Trustee in, to and under the Wakala Assets or any - 135 -
148. part thereof (as the case may be), or if the sale, transfer and conveyance of any of the Trustee's interests, rights, title, benefits and entitlements, present and future, in, to and under any Wakala Asset is not (or is alleged not to be) effective in any jurisdiction for any reason, the Obligor shall (as an independent, severable and separately enforceable obligation) pay to the Trustee or the Delegate (as applicable) (by way of indemnity on an after Tax basis) such amount as is required for the purposes of redemption in full of the relevant Certificates (including any accrued but unpaid Periodic Distribution Amounts thereunder) and, accordingly, the amount payable under any such indemnity claim will be equal to the relevant Exercise Price or Optional Put Exercise Price or Optional Call Exercise Price as applicable, in each case without duplication. A Transaction Account in London will be established in the name of the Trustee. Moneys received in the Transaction Account will, inter alia, comprise payments of Periodic Distribution Amounts and/or Dissolution Amounts immediately prior to each Periodic Distribution Date and/or any Dissolution Date, as the case may be. The Trust Deed shall provide that all moneys credited to the Transaction Account from time to time will be applied in the order of priority set out in Condition 6.2 (Application of Proceeds from the Trust Assets). If and to the extent the Trustee has exercised its rights under Condition 21 (Further Issues) to issue Additional Certificates in respect of a Series, on the date on which any Additional Certificates are created and issued, the Trustee will execute a Declaration of Commingling of Assets for and on behalf of the holders of the existing Certificates and the holders of such Additional Certificates so created and issued, declaring that the Additional Assets transferred to the Trustee (in respect of the issuance of the Additional Certificates) and the Wakala Assets comprising the Wakala Portfolio immediately prior to the creation and issue of the Additional Assets (in respect of the relevant Series as in existence immediately prior to the issue of such Additional Certificates) and each Commodity Murabaha Investment made pursuant to the Master Murabaha Agreement (and all rights arising under or with respect thereto) are commingled and shall collectively comprise part of the Trust Assets for the benefit of the holders of the existing Certificates and the holders of such Additional Certificates as tenants in common pro rata according to the face amount of Certificates held by each Certificateholder, in accordance with the Trust Deed. Shari'a Compliance Each Transaction Document to which it is a party will provide that each of EI Sukuk Company Ltd. and Emirates Islamic Bank PJSC agrees that it has accepted the Shari'a compliant nature of the relevant Transaction Documents and the other Transaction Documents to which it is a party and, to the extent permitted by law, further agrees that: (a) it shall not claim that any of its obligations under the relevant Transaction Documents and the other Transaction Documents to which it is a party (or any provision thereof) is ultra vires or not compliant with the principles of Shari'a; (b) it shall not take any steps or bring any proceedings in any forum to challenge the Shari'a compliance of the relevant Transaction Documents and the other Transaction Documents to which it is a party; and (c) none of its obligations under the relevant Transaction Documents and the other Transaction Documents to which it is a party shall in any way be diminished, abrogated, impaired, invalidated or otherwise adversely affected by any finding, declaration, pronouncement, order or judgment of any court, tribunal or other body that the relevant Transaction Documents and the other Transaction Documents to which it is a party are not compliant with the principles of Shari'a. - 136 -
149. TAXATION The following is a general description of certain tax considerations relating to the Certificates . It does not purport to be a complete analysis of all tax considerations relating to the Certificates and does not constitute legal or tax advice. Prospective purchasers of Certificates should consult their tax advisers as to the consequences under the tax laws of the countries of their respective citizenship, residence or domicile of acquiring, holding and disposing of Certificates and receiving payments under the Certificates. This summary is based upon the law as in effect on the date of this Base Prospectus and is subject to any change in law that may take effect after such date. Dubai and the United Arab Emirates The following is a general summary of the current tax law and practice in Dubai and the UAE (to the extent applicable in Dubai) ("Dubai Law") and does not constitute legal or tax advice. Prospective investors in the Certificates are advised to consult their own tax advisers with respect to the tax consequences under the tax laws of the country in which they are resident, of the purchase ownership or disposition of the Certificates or any interest therein. Under existing Dubai Law, although an income tax decree has been enacted in Abu Dhabi and in Dubai (the Abu Dhabi Income Tax Decree 1965 (as amended) and the Dubai Income Tax Decree 1969 (as amended)) which provides for tax to be imposed on the taxable income of all bodies corporate which carry on a trade or business, the regime is not currently enforced. In practice, only companies active in the hydrocarbon industry, some related service industries and branches of foreign banks operating in the UAE have been required to pay tax. There are currently no withholding taxes required to be levied under UAE, Abu Dhabi or Dubai law in respect of payments on debt securities (including in relation to the Certificates). In the event of the imposition of any withholding, the relevant Obligor has undertaken to gross-up any payments subject to certain limitations, as described in Condition 13 (Taxation). The Constitution of the UAE specifically reserves to the Federal Government of the UAE the right to revise taxes on a federal basis for the purposes of funding its budget. It is not known whether this right will be exercised in the future. The UAE has entered into double taxation arrangements with certain other countries, but these are not extensive in number. Cayman Islands The following is a discussion on certain Cayman Islands income tax consequences of an investment in the Certificates. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor's particular circumstances and does not consider tax consequences other than those arising under Cayman Islands law. Under existing Cayman Islands laws, payments on Certificates to be issued will not be subject to taxation in the Cayman Islands and no withholding will be required on the payments to any holder of the Certificates, nor will gains derived from the disposal of the Certificates be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance or gift tax. Subject as set out below, no capital or stamp duties are levied in the Cayman Islands on the issue, transfer or redemption of Certificates. The Trustee has received, from the Governor-in-Cabinet of the Cayman Islands, pursuant to the Tax Concessions Law (1999 Revision), as amended, of the Cayman Islands, an undertaking dated 1 May 2007 that for a period of 20 years from the date of the grant of the undertaking no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to the Trustee or its operations and, in addition, that no tax to be levied on profits, income, gains or appreciations which is in the nature of estate duty or inheritance tax shall be payable on or in respect of the shares, debentures or other obligations (which includes the Certificates) of the Trustee or by way of the withholding in whole or in part of any relevant payment (as defined in Section 6(3) of the Tax Concessions Law (1999 Revision), as amended, of the Cayman Islands). No capital or stamp duties are levied in the Cayman Islands on the issue, transfer or redemption of Certificates. However, an instrument transferring title to any Certificates, if executed in or brought into the Cayman Islands, would be subject to Cayman Islands stamp duty. An annual registration fee is payable by the Trustee to the Cayman Islands - 137 -
150. Registrar of Companies which is calculated by reference to the nominal amount of its authorised share capital . At current rates, this annual registration fee is approximately U.S.$853.66. The Cayman Islands has signed an inter-governmental agreement to improve international tax compliance and the exchange of information with the United States (the "US IGA"). The Cayman Islands has also signed, along with over 100 other countries, a multilateral competent authority agreement to implement the OECD Standard for Automatic Exchange of Financial Account Information – Common Reporting Standard (the "CRS" and together with the US IGA, "AEOI"). Cayman Islands regulations have been issued to give effect to the US IGA and CRS (collectively, the "AEOI Regulations"). Pursuant to the AEOI Regulations, the Cayman Islands Tax Information Authority (the "TIA") has published guidance notes on the application of the US IGA and CRS. All Cayman Islands "Financial Institutions" (including the Trustee) are required to comply with the registration, due diligence and reporting requirements of the AEOI Regulations, unless the Trustee is able to rely on an exemption that permits it be to treated as a "Non-Reporting Financial Institution" (as defined in the relevant AEOI Regulations) with respect to one or more of the AEOI regimes, in which case only the registration requirement would apply under CRS. The Trustee does not propose to rely on any reporting exemption and therefore intends to comply with the requirements of the AEOI Regulations as a "Reporting Financial Institution". The AEOI Regulations require the Trustee to, amongst other things: (a) register with the IRS to obtain a Global Intermediary Identification Number (in the context of the US IGA only); (b) register with the TIA, and thereby notify the TIA of its status as a "Reporting Financial Institution"; (c) adopt and implement written policies and procedures setting out how it will address its obligations under CRS; (d) conduct due diligence on its accounts to identify whether any such accounts are considered "Reportable Accounts"; and (e) report information on such Reportable Accounts to the TIA. The TIA will transmit such information to the applicable overseas fiscal authorities. Under the terms of the US IGA, withholding will not be imposed on payments made to the Trustee unless the IRS has specifically listed the Trustee as a non-participating financial institution, or on payments made by the Trustee to the Certificateholders unless the Trustee has otherwise assumed responsibility for withholding under United States tax law. By investing in the Trustee and/or continuing to invest in the Trustee, investors shall be deemed to acknowledge that further information may need to be provided to the Trustee, the Trustee's compliance with the AEOI Regulations may result in the disclosure of investor information, and investor information may be exchanged with overseas fiscal authorities. Where an investor fails to provide any requested information (regardless of the consequences), the Trustee reserves the right to take any action and/or pursue all remedies at its disposal including, without limitation, compulsory redemption or withdrawal of the investor concerned. The Proposed Financial Transactions Tax On 14 February 2013, the European Commission published a proposal (the "Commission's proposal") for a Directive for a common financial transaction tax ("FTT") in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the "participating Member States"). However, Estonia has since stated that it will not participate. The Commission's proposal has very broad scope and could, if introduced, apply to certain dealings in the Certificates (including secondary market transactions) in certain circumstances. The issuance and subscription of Certificates should, however, be exempt. Under the Commission's proposal, FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Certificates where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, "established" in a participating Member State in a broad range of circumstances, including: (a) by transacting with a person established in a participating Member State; or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State. - 138 -
151. However , the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of the Certificates are advised to seek their own professional advice in relation to the FTT. FATCA Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA, a "foreign financial institution" may be required to withhold on certain payments it makes ("foreign passthru payments") to persons that fail to meet certain certification, reporting or related requirements. The Trustee may be a foreign financial institution for these purposes. A number of jurisdictions (including the UAE and the Cayman Islands) have entered into, or have agreed in substance to, intergovernmental agreements with the United States to implement FATCA ("IGAs"), which modify the way in which FATCA applies in their jurisdictions. Under the provisions of IGAs as currently in effect, a foreign financial institution in an IGA jurisdiction would generally not be required to withhold under FATCA or an IGA from payments that it makes. Certain aspects of the application of the FATCA provisions and IGAs to instruments such as the Certificates, including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Certificates, are uncertain and may be subject to change. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Certificates, such withholding would not apply prior to the date that is two years after the publication of the final regulations defining "foreign passthru payment" and Certificates issued on or prior to the date that is six months after the date on which final regulations defining "foreign passthru payments" are filed with the U.S. Federal Register generally would be "grandfathered" for purposes of FATCA withholding unless materially modified after such date. However, if additional Certificates (as described under "Terms and Conditions – Further Issues") that are not otherwise distinguishable from previously issued Certificates are issued after the expiration of the grandfathering date and are subject to withholding under FATCA, then withholding agents may treat all Certificates, including the Certificates offered prior to the expiration of the grandfathering period, as subject to withholding under FATCA. Certificateholders should consult their own tax advisers regarding how these rules may apply to their investment in Certificates. - 139 -
152. SUBSCRIPTION AND SALE The Dealers have , in an amended and restated programme agreement dated 29 July 2020 (the "Programme Agreement"), agreed with the Trustee and the Obligor a basis upon which they or any of them may from time to time agree to purchase Certificates. Any such agreement will extend to those matters stated under "Terms and Conditions of the Certificates". In the Programme Agreement, each of the Trustee and the Obligor has agreed to reimburse the Dealers for certain of their expenses in connection with the establishment and any future update of the Programme and the issue of Certificates under the Programme. 1. Cayman Islands Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it shall not make, and has not made, any invitation or offer to the public in the Cayman Islands to subscribe for the Certificates. 2. Dubai International Financial Centre Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered and will not offer the Certificates to any person in the Dubai International Financial Centre unless such offer is: 3. (a) an "Exempt Offer" in accordance with the Markets Rules (MKT) Module of the Dubai Financial Services Authority (the "DFSA") rulebook; and (b) made only to persons who meet the Professional Client criteria set out in Rule 2.3.3 of the DFSA Conduct of Business Module of the DFSA rulebook. Hong Kong Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: 4. (a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Certificates, except for Certificates which are a "structured product" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the "SFO"), other than: (i) to "professional investors" as defined in the SFO and any rules made under the SFO; or (ii) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the "C(WUMP)O") or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and (b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Certificates, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Certificates which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" as defined in the SFO and any rules made under the SFO. Kingdom of Bahrain Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered or sold, and will not offer or sell, any Certificates, except on a private placement basis, to persons in the Kingdom of Bahrain who are "accredited investors". For this purpose, an "accredited investor" means: (a) an individual holding financial assets (either singly or jointly with a spouse) of U.S.$1,000,000 or more excluding that person's principal place of residence; or - 140 -
153. 5 . (b) a company, partnership, trust or other commercial undertaking which has financial assets available for investment of not less than U.S.$1,000,000; or (c) a government, supranational organisation, central bank or other national monetary authority or a state organisation whose main activity is to invest in financial instruments (such as a state pension fund). Kingdom of Saudi Arabia No action has been or will be taken in the Kingdom of Saudi Arabia that would permit a public offering of the Certificates. Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a "Saudi Investor") who acquires any Certificates pursuant to an offering should note that the offer of Certificates is a private placement under Article 9 or Article 10 of the "Rules on the Offer of Securities and Continuing Obligations" as issued by the Board of the Capital Market Authority resolution number 3-123-2017 dated 27 December 2017, as amended by the Board of the Capital Market Authority resolution number 1-104-2019 dated 30 September 2019 (the "KSA Regulations"), made through a person authorised by the Capital Market Authority to carry on the securities activity of arranging and following a notification to the Capital Market Authority under Article 11 of the KSA Regulations. The Certificates may thus not be advertised, offered or sold to any person in the Kingdom of Saudi Arabia other than to "sophisticated investors" under Article 9 of the KSA Regulations or by way of a limited offer under Article 10 of the KSA Regulations. Each Dealer represents and agrees, and each further Dealer appointed under the Programme will be required to represent and agree, that any offer of Certificates to a Saudi Investor will be made in compliance with Article 9 or Article 10 of the KSA Regulations. Each offer of Certificates shall not therefore constitute a "public offer", an "exempt offer" or a "parallel market offer" pursuant to the KSA Regulations, but is subject to the restrictions on secondary market activity under Article 15 of the KSA Regulations. Any Saudi Investor who has acquired Certificates pursuant to a private placement under Article 9 or Article 10 of the KSA Regulations may not offer or sell those Certificates to any person unless the offer or sale is made through an authorised person appropriately licensed by the CMA and: (a) the Certificates are offered or sold to a Sophisticated Investor (as defined in Article 9 of the KSA Regulations); (b) the price to be paid for the Certificates in any one transaction is equal to or exceeds Saudi Riyals 1 million or an equivalent amount; or (c) the offer of sale is otherwise in compliance with Article 15 of the KSA Regulations. 6. Malaysia Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: 7. (a) this Base Prospectus has not been registered as a prospectus with the Securities Commission of Malaysia under the Capital Markets and Services Act 2007 of Malaysia ("CMSA"); and (b) accordingly, the Certificates have not been and will not be offered, sold or delivered, and no invitation to subscribe for or purchase the Certificates has been or will be made, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia, other than to persons falling within any one of the categories of persons specified under Part I of Schedule 6 or Section 229(1)(b) and Part I of Schedule 7 or Section 230(1)(b), read together with Schedule 8 or Section 257(3) of the CMSA, subject to any law, order, regulation or official directive of the Central Bank of Malaysia, the Securities Commission of Malaysia and/or any other regulatory authority from time to time. People's Republic of China Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that the Certificates will not be offered or sold directly or indirectly within the People's Republic of China (for such purposes, not including Hong Kong and - 141 -
154. Macau Special Administrative Regions or Taiwan ) ("PRC"). This Base Prospectus or any information contained or incorporated by reference herein does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. This Base Prospectus, any information contained herein or the Certificates have not been, and will not be, submitted to, approved by, verified by or registered with any relevant governmental authorities in the PRC and thus may not be supplied to the public in the PRC or used in connection with any offer for the subscription or sale of the Certificates in the PRC. The Certificates may only be invested by the PRC investors that are authorised to engage in the investment in the Certificates of the type being offered or sold. Investors are responsible for obtaining all relevant governmental approvals, verifications, licences or registrations (if any) from all relevant PRC governmental authorities, including, but not limited to, the State Administration of Foreign Exchange, the China Securities Regulatory Commission, the China Banking Regulatory Commission, and other relevant regulatory bodies, and complying with all relevant PRC regulations, including, but not limited to, any relevant foreign exchange regulations and/or overseas investment regulations. 8. Public Offer Selling Restriction under the Prospectus Regulation In relation to each Member State of the EEA and the UK (each, a "Relevant Member State"), each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not made and will not make an offer of Certificates which are the subject of the offering contemplated by this Base Prospectus as completed by the applicable Final Terms in relation thereto to the public in that Relevant Member State, except that it may make an offer of such Certificates to the public in that Relevant Member State: (a) at any time to any legal entity which is a qualified investor as defined in the Prospectus Regulation; or (b) at any time to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Regulation), subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Trustee or the Obligor for any such offer; or (c) at any time in any other circumstances falling within Article 1(4) of the Prospectus Regulation. provided that no such offer of Certificates referred to in (a) to (c) above shall require the Trustee, the Obligor or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation. For the purposes of this provision, the expression an "offer of Certificates to the public" in relation to any Certificates in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Certificates to be offered so as to enable an investor to decide to purchase or subscribe the Certificates. 9. Singapore Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be required to acknowledge, that this Base Prospectus has not been, and will not be, registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered or sold any Certificates or caused the Certificates to be made the subject of an invitation for subscription or purchase and will not offer or sell any Certificates or cause the Certificates to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Base Prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Certificates, whether directly or indirectly, to any person in Singapore other than: (a) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore (as modified or amended from time to time, the "SFA")) pursuant to Section 274 of the SFA; (b) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) - 142 -
155. of the SFA , or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or (c) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the Certificates are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Certificates pursuant to an offer made under Section 275 of the SFA except: 10. (i) to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (ii) where no consideration is or will be given for the transfer; (iii) where the transfer is by operation of law; (iv) as specified in Section 276(7) of the SFA; or (v) as specified in Regulation 37(A) of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018. State of Qatar (including the Qatar Financial Centre) Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered, delivered or sold, and will not offer, deliver or sell at any time, directly or indirectly, any Certificates in the State of Qatar (including the Qatar Financial Centre), except: (a) in compliance with all applicable laws and regulations of the State of Qatar (including the Qatar Financial Centre); and (b) through persons or corporate entities authorised and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the State of Qatar (including the Qatar Financial Centre). This Base Prospectus (i) has not been, and will not be, registered with or approved by the Qatar Financial Markets Authority, the Qatar Central Bank, the Qatar Stock Exchange or the Qatar Financial Centre Regulatory Authority and may not be publicly distributed in the State of Qatar (including the Qatar Financial Centre); (ii) is intended for the original recipient only and must not be provided to any other person; and (iii) is not for general circulation in the State of Qatar (including the Qatar Financial Centre) and may not be reproduced or used for any other purpose. 11. UAE (excluding the Dubai International Financial Centre) Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that the Certificates to be issued under the Programme have not been and will not be offered, sold or publicly promoted or advertised by it in the UAE other than in compliance with any laws applicable in the UAE governing the issue, offering and sale of securities. 12. United Kingdom Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) in relation to any Certificates which have a maturity of less than one year: (i) it is a person - 143 -
156. whose ordinary activities involve it in acquiring , holding, managing or disposing of investments (as principal or agent) for the purposes of its business; and (ii) it has not offered or sold and will not offer or sell any Certificates other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Certificates would otherwise constitute a contravention of Section 19 of the FSMA by the Trustee; 13. (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Certificates in circumstances in which Section 21(1) of the FSMA does not apply to the Trustee or the Obligor; and (c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Certificates in, from or otherwise involving the UK. United States The Certificates have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered and sold any Certificates, and will not offer and sell any Certificates: (a) as part of their distribution at any time; and (b) otherwise until 40 days after the completion of the distribution of all Certificates of the Tranche of which such Certificates are a part within the United States or to, or for the account or benefit of U.S. persons expect pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each Dealer has also agreed, and each further Dealer appointed under the Programme will be required to agree, that, at or prior to confirmation of sale of Certificates, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Certificates from it during the distribution compliance period a confirmation or notice to substantially the following effect: "The Certificates covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the completion of the distribution of the Certificates except, in either case, in accordance with Regulation S under the Securities Act. Terms used above have the meanings given to them by Regulation S." Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it, its affiliates or any persons acting on its or their behalf have not engaged and will not engage in any directed selling efforts with respect to any Certificates, and it and they have complied and will comply with the offering restrictions requirement of Regulation S. Until 40 days after the commencement of the offering of any Series of Certificates, an offer or sale of such Certificates within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with an available exemption from registration under the Securities Act. - 144 -
157. Terms used in these paragraphs have the meanings given to them by Regulation S under the Securities Act . 14. General Each Dealer has agreed, and each further Dealer appointed under the Programme will be required to agree, that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Certificates or possesses or distributes this Base Prospectus and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Certificates under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and none of the Trustee, the Obligor, the Delegate or any other Dealer shall have any responsibility therefor. None of the Trustee, the Obligor, the Delegate or any of the Dealers represents that Certificates may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating any such sale. With regard to each Tranche, the relevant Dealer will be required to comply with any additional restrictions agreed between the Trustee, the Obligor and the relevant Dealer and set out in the relevant Subscription Agreement or dealer accession letter, as applicable. - 145 -
158. GENERAL INFORMATION Authorisation The establishment of the Programme was authorised by a resolution of the board of directors of the Trustee dated 6 June 2007 . The update of the Programme and issue of Certificates thereunder was authorised by a resolution of the board of directors of the Trustee passed on 27 July 2020. The Trustee has obtained or will obtain from time to time all necessary consents, approvals and authorisations in connection with the issue and performance of the Certificates. The Obligor's entry into the Transaction Documents to which it is a party was authorised by a resolution of Board on 26 January 2020. Listing of Certificates Application has been made to Euronext Dublin for Certificates issued under the Programme to be admitted to the Official List of Euronext Dublin and to Euronext Dublin for such Certificates to be admitted to trading on its Regulated Market. Application has also been made to the DFSA for Certificates issued under the Programme to be admitted to the DFSA Official List and to Nasdaq Dubai for such Certificates to be admitted to trading on Nasdaq Dubai. Documents Available For as long as any Certificates issued pursuant to this Base Prospectus remain outstanding, copies of the following documents will, when published, be available (i) for inspection by holders and obtainable free of charge at the specified office for the time being of the Principal Paying Agent; or (ii) at the option of the Principal Paying Agent, by email at a holder's request (subject to provision of proof of holding satisfactory to the Principal Paying Agent and the Obligor), during normal business hours on any weekday (excluding Saturdays, Sundays and public holidays). The documents listed in paragraph (a) to paragraph (d) (inclusive) and paragraph (f) below, will also be available on the Obligor's website at https://www.emiratesislamic.ae/eng/financial-information/: (a) the Memorandum and Articles of Association of the Trustee (as the same may be updated from time to time); (b) the Memorandum and Articles of Association of the Obligor (as the same may be updated from time to time); (c) the unaudited condensed consolidated interim financial statements of the Group as of and for the six months ended 30 June 2020 together with the review report thereon; (d) the audited consolidated annual financial statements of the Group as of and for the year ended 31 2019 and 31 December 2018 together with the audit reports thereon; (e) the other Transaction Documents (excluding the Programme Agreement and each Subscription Agreement), the Corporate Services Agreement and the forms of the Global Certificate and the Certificates in definitive form; (f) a copy of this Base Prospectus and the documents incorporated by reference herein; and (g) any future base prospectuses, information memoranda, applicable Final Terms and supplements to this Base Prospectus and any other documents incorporated herein or therein by reference, save that such documents relating to Certificates which are neither admitted to trading on a regulated market in the EEA or the UK nor offered in the EEA or the UK in circumstances where a base prospectus is required to be published under the Prospectus Regulation will only be available for inspection by a holder of such Certificates and such holder must produce evidence satisfactory to the Trustee and the Paying Agent as to its holding of Certificates and identity. - 146 -
159. In addition , copies of this Base Prospectus, each Final Terms relating to Certificates which are admitted to trading on Euronext Dublin's Regulated Market and each document incorporated by reference are available on the Euronext Dublin's website at www.ise.ie/Market-Data-Announcements/Debt/. Copies of this Base Prospectus and each Final Terms relating to Certificates which are admitted to trading on Nasdaq Dubai are available on Nasdaq Dubai's website at www.nasdaqdubai.com. Clearing Systems The Certificates have been accepted for clearance through Euroclear and Clearstream, Luxembourg (which are the entities in charge of keeping the records). The appropriate Common Code and ISIN for each Series of Certificates allocated by Euroclear and Clearstream, Luxembourg will be specified in the applicable Final Terms. If the Certificates are to clear through an additional or alternative clearing system the appropriate information will be specified in the applicable Final Terms. The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L-1855 Luxembourg. Legal Entity Identifier The Legal Entity Identifier code ("LEI") of the Trustee is 549300IIDFP0RTSSG071. The LEI of the Obligor is 254900JGNW4T9ZFM7N20. Conditions for Determining Price The price and amount of Certificates to be issued under the Programme will be determined by the Trustee and the relevant Dealer at the time of issue in accordance with prevailing market conditions. Significant or Material Change There has been no significant change in the financial or trading position or financial performance of the Trustee and no material adverse change in the prospects of the Trustee, in each case, since the date of its incorporation. Save as disclosed in "Risk Factors – Risks factors relating to the Group's business activities – The Group is exposed to market risks due to its operations as a financial institution – The Group's business, results of operations, financial condition and prospects may be adversely affected by changes in the macro-economic environment following the COVID-19 outbreak" and "Risk Factors – Risk factors relating to the Group's business activities – The Group is exposed to credit risks due to its financing and investment activities", there has been no significant change in the financial or trading position or financial performance of the Obligor and its subsidiaries since 30 June 2020 and there has been no material adverse change in the prospects of the Obligor and its subsidiaries since 31 December 2019. Litigation None of the Trustee or the Obligor (or its subsidiaries) is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Trustee or the Obligor are aware) in the 12 months preceding the date of this Base Prospectus which may have, or have in such period had, a significant effect on the financial position or profitability of the Trustee and/or the Obligor (or its subsidiaries). Independent Auditors The Trustee has not prepared any audited financial statements to date, is not required by Cayman Islands law to do so and does not intend to publish audited financial statements. The auditors of the Group are Deloitte & Touche (M.E.) ("Deloitte"). Deloitte were appointed as auditors of the Obligor with effect from 1 January 2019 and: (i) have reviewed, in accordance with International Standards on Auditing, the Group's consolidated financial statements as of and for the six months ended 30 June 2020 as stated in their review report incorporated by reference herein; and (ii) audited, in accordance - 147 -
160. with International Standards on Auditing , the Group's consolidated financial statements as of and for the year ended 31 December 2019 as stated in their report incorporated by reference herein. Deloitte is regulated in the UAE by the UAE Ministry of Economy which has issued Deloitte with a license to practice as auditors. There is no professional institute of auditors in the UAE and, accordingly, Deloitte is not a member of a professional body in the UAE. All of Deloitte's audit partners are members of the institutes from where they received their professional qualification. The auditors of the Group, for the year ended 31 December 2018, were Ernst & Young Middle East (Dubai Br.). Ernst & Young Middle East (Dubai Br.) were appointed as auditors of the Group with effect from 1 January 2018 and have audited, in accordance with International Standards on Auditing, the Group's consolidated financial statements as of and for the year ended 31 December 2018 as stated in their report incorporated by reference herein. Ernst & Young Middle East (Dubai Br.) is regulated in the UAE by the UAE Ministry of Economy which has issued Ernst & Young Middle East (Dubai Br.) with a license to practice as auditors. There is no professional institute of auditors in the UAE and, accordingly, Ernst & Young Middle East (Dubai Br.) is not a member of a professional body in the UAE. All of Ernst & Young's audit partners are members of the institutes from where they received their professional qualification. Dealers transacting with the Obligor Certain of the Dealers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services for the Obligor (and its affiliates) in the ordinary course of business for which they have received, and for which they may in the future receive, fees. In addition, in the ordinary course of their business activities, the Dealers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank financing/loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Obligor or its respective affiliates. Certain of the Dealers or their affiliates that have a lending relationship with the Obligor routinely hedge their credit exposure to the Obligor consistent with its customary risk management policies. Typically, such Dealers and their affiliates would hedge such exposure by entering into transactions which consist of either the obtaining of Shari'a compliant credit default swaps or the creation of short positions in securities, including potentially the Certificates issued under the Programme. Any such short positions could adversely affect future trading prices of Certificates issued under the Programme. The Dealers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. Irish Listing Agent Walkers Listing Services Limited is acting solely in its capacity as listing agent for the Trustee in connection with the Certificates and is not itself seeking admission of the Certificates to the Official List or to trading on the Regulated Market for the purposes of the Prospectus Regulation. Obligor's website The Obligor's website is https://www.emiratesislamic.ae/eng/. Unless specifically incorporated by reference into this Base Prospectus, the information contained on this website is not incorporated by reference into, or otherwise included in, this Base Prospectus. Shari'a Boards The transaction structure relating to the Certificates (as described in this Base Prospectus) has been approved by the EI Shari'a Committee and the Global Shariah Supervisory Committee of Standard Chartered Bank. For the EI Shari'a Committee see further "Management and Employees – Board Committees – Internal Shari'a Supervision Committee". - 148 -
161. Global Shariah Supervisory Committee of Standard Chartered Bank Dr . Nizam Yaquby Dr. Yaquby studied traditional Islamic studies under the guidance of eminent Islamic scholars from different parts of the world. He has a BA in economics and comparative religions from McGill University, Canada. He has served in Bahrain Mosques from 1981 to 1990 where he taught Tafsir, Hadith and Fiqh in Bahrain since 1976. In addition to advising Citi Islamic Investment Bank E.C. and other Islamic finance institutions and funds, Sheikh Yaquby is a member of the Islamic Fiqh Academy and Auditing and Accounting Organisation for Islamic Financial Institutions. He has published several articles and books on various Islamic subjects including banking and finance. Dr. Mohammed Ali Elgari Dr. Elgari is a former Professor of Islamic Economics at King Abdulaziz University, Jeddah, Kingdom of Saudi Arabia and a former Director of the Centre for Research in Islamic Economics, in the same university. He serves as an expert at the Islamic jurisprudence academy of the Organisation of Islamic Cooperation and the Islamic Jurisprudence Academy of the Islamic World League and a member of the Shariah Council of AAOIFI. He is a member of the editorial board of several academic publications in the field of Islamic finance and jurisprudence among them, the Journal of the Jurisprudence Academy (of the IWL), the Journal of Islamic Economic Studies (IDB), the Journal of Islamic Economic (IAIE, London), and the advisory board of Harvard Series in Islamic Law, Harvard Law School. Dr. Elgari is a member of numerous Shari'a boards of Islamic banks and takaful companies internationally. He authored several books in Islamic finance and published numerous articles on the subject both in Arabic and English. Dr. Elgari is also a frequent speaker at conferences worldwide. Dr. Elgari holds a PhD in Economics from the University of California. Dr. Aznan Hasan Dr. Aznan Hasan is an Associate Professor in Islamic Law at Ahmad Ibrahim Kulliyyah of Laws at the International Islamic University (Malaysia) and has taught Islamic law there since 2003. He is also the President of the Association of Shariah Advisors in Islamic Finance and has been the Deputy Chairman of the Shariah Advisory Council of the Securities Commission of Malaysia since July 2010. He was a member of the Shariah Advisory Council of Bank Negara Malaysia (from November 2006 to August 2008 and from November 2010 to October 2013). He is also the Chairman of the Shariah Supervisory Board, Shariah Advisory Committee, Barclays DIFC (April 2011 to present). He is a Shari'a adviser to Maybank Islamic in Malaysia and has been advising ABSA Islamic Banking, South Africa since July 2010. - 149 -
162. TRUSTEE EI Sukuk Company Ltd . c/o MaplesFS Limited P.O. Box 1093 Queensgate House Grand Cayman, KY1-1102 Cayman Islands OBLIGOR Emirates Islamic Bank PJSC P.O. Box 6564 Dubai United Arab Emirates DELEGATE Citibank N.A., London Branch Citigroup Centre, Canada Square Canary Wharf London, E14 5LB United Kingdom PRINCIPAL PAYING AGENT, CALCULATION AGENT AND TRANSFER AGENT Citibank N.A., London Branch Citigroup Centre, Canada Square Canary Wharf London, E14 5LB United Kingdom REGISTRAR Citigroup Global Markets Europe AG Reuterweg 16 D-60323 Frankfurt Am Main Germany INDEPENDENT AUDITORS TO THE OBLIGOR AS OF 1 JANUARY 2019 Deloitte & Touche (M.E.) Building 3, Level 6 Emaar Square Downtown Dubai P.O. Box 4254, Dubai United Arab Emirates INDEPENDENT AUDITORS TO THE OBLIGOR AS OF 1 JANUARY 2018 AND UP TO 31 DECEMBER 2018 Ernst & Young Middle East (Dubai Br.) P.O. Box 9267 28th Floor, Al Saqr Business Tower Sheikh Zayed Road Dubai United Arab Emirates LEGAL ADVISERS To the Trustee as to Cayman Islands law
163. Maples and Calder (Dubai) LLP Level 14, Burj Daman Dubai International Financial Centre PO Box 119980 Dubai United Arab Emirates To the Obligor as to English and UAE law Clifford Chance LLP Level 15 Burj Daman Dubai International Financial Centre P.O. Box 9380 Dubai United Arab Emirates To the Dealers as to English and UAE law To the Delegate as to English law Norton Rose Fulbright (Middle East) LLP 4th Floor, Gate Precinct Building 3 Dubai International Financial Centre P.O. Box 103747 Dubai United Arab Emirates Norton Rose Fulbright LLP 3 More London Riverside SE1 2AQ United Kingdom DEALERS Citigroup Global Markets Limited Citigroup Centre Canada Square Canary Wharf London E14 5LB United Kingdom Emirates Islamic Bank PJSC P.O. Box 6564 Dubai United Arab Emirates Dubai Islamic Bank PJSC P.O. Box 1080 Dubai United Arab Emirates Emirates NBD Bank PJSC P.O. Box 777 Dubai United Arab Emirates Standard Chartered Bank 7th Floor, Building One Gate Precinct Dubai International Financial Centre P.O. Box 999 Dubai United Arab Emirates LISTING AGENT Walkers Listing Services Limited The Exchange George's Dock, IFSC Dublin 1, Ireland D01 W3P9