In ISSBNT, the securities sold via Leg 1 and Leg 2 are considered as different assets of sale. The set of securities transacted under Leg 1 might have been sold by Approved User of which the Approved Supplier will get upon execution of Leg 2 later, a different set of similar or equivalent securities.

The execution of Leg 2 in an ISSBNT must not be on the same day with the execution of Leg 1. The time gap is required under ISSBNT to eliminate a sale with an immediate re-purchase (bai’ al-‘inah).

When is Leg 2 expected to take place?

Leg 2 should take place when the Approved Supplier exercises his option to purchase equivalent securities as that in Leg 1 in accordance with the Wa’d given by the Approved User to the Approved Supplier or upon the triggering of certain events which the parties have agreed upon as circumstances when the Leg 2 transaction is to be executed e.g. the announcement of a corporate action involving the securities in question. This corporate action could include rights issues, bonus issues or mergers and acquisitions.

The parties could, in lieu of executing Leg 2 also agree to vary the number of ISSBNT Eligible Securities but this would usually be confined to situations of corporate actions such as bonus issues and subdivision of shares.

Is it possible for an Approved Supplier to sell the ISSBNT Eligible Securities that have been sold to an Approved User (under Leg 1 of ISSBNT) to a third party?

It is not possible for the Approved Supplier to sell the securities to a third party since the securities are considered transferred to and owned by the Approved User as a result of the execution of Leg 1. If the Approved Supplier intends to sell the securities to a third party, the Approved Supplier will need to have recalled the securities from the Approved User first before selling the securities to a third party.

What are examples of triggering events that would lead to the execution of Leg 2?

Execution of Leg 2 would take place upon occurrence of a triggering event as agreed between the ISSBNT Participants and set out in the Wa’d 1 and Wa’d 2 of ISSBNT.

Depending on mutual agreement between an Approved Supplier and Approved User, the circumstances and/ or events that would trigger the Wa’d 1 to be exercised by Approved User are amongst others:

• Whenever the Approved User does not want to hold the ISSBNT Securities i.e. to make full settlement of the Sale Price and to redeem the collateral.
• Whenever there is any activity related to corporate action of the affected Public Listed Company (“PLC”) e.g. delisting, merger, etc.

Depending on mutual agreement between Approved Supplier and Approved User, the circumstances and/ or events that would trigger Wa’d 2 to be exercised by Approved Supplier are amongst others:

• Whenever the Approved Supplier needs to recall the sold securities for the purpose of exercising its voting rights.
• Whenever the Approved Supplier wants to completely dispose of its holding of the securities to the market (not through ISSBNT).
• Whenever the total payment of monthly installment (“MI”) and dividend (“D”) exceeds 90% of the value of the Sale Price of Leg 1.
• Whenever there is any issuance of ‘bonus issue’ or ‘rights issue’ by the respective PLC(s) on the assumption that the Approved Supplier would want to participate in such corporate exercises.

Can ISSBNT be extinguished without the execution of Leg 2?

The parties may also agree upfront that the ISSBNT may be extinguished without the execution of Leg 2 in certain circumstances, such as follows:

• Where any of the events of default under the agreement between the ISSBNT Participants setting out the terms and conditions of the transaction are triggered; and
• Where Leg 2 cannot be performed as a result of an event beyond the control of the ISSBNT Participants, and this would include the situation where the ISSBNT Securities cease to become Shariah-compliant.