Escolar Documentos
Profissional Documentos
Cultura Documentos
Prepared By:
Dr. H. M. Mosarof Hossain
Professor
Department of Finance
University of Dhaka
mosarof@du.ac.bd
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Sukuk Market
Shariah framework for Islamic securities:
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Sukuk Issuing process
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Role of shariah framework in sukuk structuring
When structuring sukuk one has to first pay attention
to the relationship in the primary market. If investors
want to enjoy return, the primary relationship cannot
be loan transaction. Furthermore, the underlying asset
according to the global shariah standard, sholud not
include receivables that are traded at discount. Next,
to ensure that sukuk can be traded in the secondary
market, it is important to look at the underlying asset
they represent. If they represent a debt, the global
shariah standard does not allow the secondary
trading of such sukuk.
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Sukuk structures
The type of shariah contract chosen by an issuer
depends on shariah requirements, economic
objectives, the availability of assets and the level of
debt the company has, the credit rating of the issuer,
the legal framework in the jurisdiction and the tax
implication of a structure. Followings are the sukuk
structures based on shariah:
(i) Sales-based: bay bithaman ajil, murabahah,
salam, istisna
(ii) Lease-based: ijarah, ijarah muntahiyah bittamilk, ijarah
mawsufah fi dhimmah
(iii) Partnership-based: mudarabah, musharakah
(iv) agency-based: wakalah bi istithmar
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Sukuk structures
Sukuk classification based on commercial function:
(i) corporate
(ii) Sovereign
(iii) Exchangeable and convertible
(iii) Subordinated
(iv) Stapled
(v) Asset-based
(vi) Project financing
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Sukuk structures
Sales-based sukuk: the primary subscriber and the issuer shall
execute a purchase agreement under which the primary subscriber
shall purchase the identified assets at the purchase price from the
issuer. Immediately thereafter, the primary subscriber shall sell the
identified asset to the issuer of an agreed selling price through the
execution of a sale agreement. The selling price shall consists of
the purchase price plus the profit margin payable on a deferred
basis over a period of time.
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Sukuk structures
In order to generate returns for investors, all sukuk
structures rely upon either the performance of an
underlying asset or a contractual arrangement with
respect to that asset. The ijara is particularly useful in
this respect as it can be used in a manner that provides
for regular payments throughout the life of a financing
arrangement, together with the flexibility to tailor the
payment profile - and method of calculation - in order to
generate a profit. In addition, the use of a purchase
undertaking is widely accepted in the context of sukuk
al-ijara without Sharia objections. These characteristics
make ijara relatively straightforward to adapt for use in
the underlying structure for a sukuk issuance.
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Sukuk structures
The rationale of Sukuk Al-ijara is that when a company
needs an asset but cannot afford to purchase it directly3, a
Special Purpose Vehicle ("SPV") comes to the scene. The
SPV purchases the asset and then leases it to the company
for a fixed period of time. Obviously, SPV is established with
the finds of the purchasing company. Another reason to opt
for Sukuk Al-ijara is that although the company can afford to
purchase the asset, it may need to maintain its cash, and
thus, the company may first purchase the asset and then
sell it to the SPV and the SPV leases it back to the
company (sale and lease back). Either way SPV, which may
be some form of a partnership or a trust company, acts as
the sukuk issuer.
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Sukuk structures
Equity based Sukuk: The types of sukuk this would include are
mudaraba and musharaka, where the sukuk investors are taking
a quasi-equity investment in the financial institution, albeit at a
higher level of priority than common equity. However, the types
of sukuk that would qualify under these rules would probably
share features with the hybrid Tier 1 sukuk being sold now by
ADIB: a perpetual, callable (after >5 years) sukuk where the
distributions are dependent upon the underlying performance of
the bank, and with the ability to see distribution fall if profits come
in below the amount required to fund the anticipated coupon.
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Sukuk structures
In general, however, I would expect this type of instrument
to function similarly to how some of the mudaraba sukuk
have been designed post-AAOIFI clarification, with features
included that will lead to a greater probability that the
anticipated dividends will be paid on schedule. This is
typically set up so that the profits generated are allocated
between the bank (mudarib) and sukuk holders (rabb ul-
mal) in a preagreed split. The dividend amount is based on
a benchmark interest rate plus a spread, and is paid out of
the investors' share of profits. Any excess is placed in a
reserve account to 'top up' future distributions if there is a
shortfall in profits below the benchmark plus spread.
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Sukuk structures
It is not clear exactly how the loss-sharing aspect will
work within a mudaraba sukuk, except that in general
the rabb ul-mal is supposed to bear all losses, and will,
with the exception of funds remaining in the reserve
account. The key point is that most mudaraba sukuk
allow the bank to use the funds alongside its own
funds, so there will have to be some breakdown of any
losses between the bank's invested capital and the
mudaraba between the bank and sukuk holders.
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Issues, Opportunities and Challenges in the Sukuk
Market
1. Sukuk- Debt or Equity: mostly debt, but at present
some scholars consider as equity.
2. Sukuk trading Mostly hold to maturity, but tradable in
secondary market.
3. Sukuk pricing - Depends on demand condition and
liquidity premium.
4. Sukuk default Not free from defaultness.
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