Post on 06-Jul-2018
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Topic III
Islamic Sukuk
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Outline
• 1. Overview
• 2. Types of Sukuk
•
3. Structuring Sukuk• 4. Issues and concerns related to
Sukuk structures
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Overview of Sukuk
• A Sukuk, eaning certicate, is an Islaic variant of aconventional !ond. It is structured to coply wit" S"ari#a.In opposition to conventional !ond "olders, sukuk "oldersare entitled to pro$ts as well as to losses.
• Sukuk are asset-backed, trada!le and S"ari%a"copati!le trust certi$cates. T"e priary condition ofissuance of Sukuk is t"e e&istence of assets on t"e!alance s"eet of t"e entity w"ic" wants to raise funds.
• T"e identi$cation of suita!le assets is t"e $rst, andargua!ly ost integral, step in t"e process of issuingSukuk certi$cates.
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Types of Sukuk
• 1. sukuk al'I(ara"
• 2. Sukuk al')us"araka
• 3. Sukuk al')udara!a"
• 4. Sukuk al'Istisna%a
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Sukuk al- Ijarah• Ijarah Sukuk : t"ese are certi$cates of e*ual denoination representing p"ysical
dura!le assets t"at are tied to an i(ara" contract as regulated !y S"aria%a.
• I(ara" sukuk represent t"e owners"ip of particular assets t"at are leased out. T"eassets can !e parcels of land or e*uipents to !e leased suc" as aircrafts ands"ips. T"e "olders of sukuk receive periodic rentals.
• I(ara" sukuk are su!(ect to risks related to t"e a!ility and willingness of t"e lessee
to pay t"e rental installents.
• T"e e&pected net return on i(ara" sukuk may not be perfectly known inadvance, as t"ere ig"t !e soe aintenance and insurance e&penses t"at arenot perfectly predicted in advance.
•
I(ara" sukuk are negotiable and can !e traded in t"e secondary arkets.
• I(ara" sukuk "olders as owners !ear full responsibility for w"at "appens to t"eirassets. T"ey are, t"us, re*uired to aintain t"e assets in suc" a good conditiont"at t"e lessee derives as uc" usufruct fro t"e as possi!le.
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Sukuk al- Ijarah (cont’d)• I(ara" Sukuk structure is t"e ost widely used in issuing
sukuk. It re*uires t"e o!ligor +!orrower to "ave non'"ypot"ecated assets t"e value of w"ic" e*uals to t"e aountof $nancing needed.
• I. t inception
Obligor
!"#
!ukukholders
$. %eclarationof trust andissue ofsukuk
&. Sukuk funding
'. "urchaseprice (. Transfers
title toassets
). *nilatera
l"urchase*ndertaking topurchasethe!"#+sinterestin theasset at,"urchas
e "riceonmaturityor eventofdefault
.lease
$. S- declares a trust in favorof investors and issues Sukuk.&. T"e investors fund t"e S-
for t"e aount of t"e issue+/-urc"ase -rice0.'. S- pays purc"ase price tot"e o!ligor(. T"e o!ligor transfers title oft"e underlying asset to t"e S-. T"e S- leases t"e asset
!ack to t"e o!ligor in e&c"angeof periodic lease rentals). T"e o!ligor issues anilateral -urc"ase ndertakingto purc"ase !ack S-%s interestin t"e asset on aturity at t"e-urc"ase -rice.
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Sukuk al- Ijarah (cont’d)
II. "eriodic "ayments III. t /aturity
Obligor
!"#
!ukukholders
$. "eriodiclease rentals
&. "eriodicpayments
T"e o!ligor pays periodic rentals to t"eS- t"at are used to ake regular
payents to t"e sukuk "olders.
Obligor
!"#
!ukukholders
$. "ays the"urchase "rice
&. "aysprincipal to
redeem thecapital
'. 0edeems
sukuk
(. !ells assetback
At aturity, t"e o!ligor !uys t"e S-%sinterest in t"e asset !ack at t"e -urc"ase
-rice and t"e sukuk are redeeed.
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Sukuk al-Musharakah
• T"e corporation and t"e Special -urpose e"icle +S- enterinto a )us"araka" Arrangeent for a $&ed period.
• T"ey agree on s"aring pro$t according to a speci$ed ratio.
•
T"e corporation ay !e appointed as an agent to develop andanage t"e !usiness !ased on us"araka".
• Any losses will !e !orne !y t"e two us"araka" parties t"ecorporation and t"e S- ' !ased on t"eir respective capitalcontri!utions.
• T"e corporation undertakes to purc"ase )us"araka" s"ares oft"e S- eit"er at t"e end of t"e agreed upon period or on aperiodic !asis +in case of diinis"ing us"araka".
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Sukuk al-Musharakah (cont’d)
I. t inception $. T"e S- +us"arik A issuessukuk in e&c"ange for cas".
&. T"e S- enters into aus"araka" agreeent wit"t"e corporation +us"arik .
'. T"e corporation contri!utes tot"e capital of t"e us"raka"'
!ased !usiness eit"er wit"cas" or wit" assets.
(. T"e S- pays its contri!utiont"e us"araka"'!ased!usiness.
. T"e us"araka" !ased!usiness invests t"eproceeds in s"aria%aperissi!le activities incopliance wit" t"e !usinessplan.
1orporation:
originator
/usharaka
!"#
Sukuk
holders
&. Issueproceeds
$. %eclaration oftrust and issueof sukuk
'. 1apitalcontribution
(. /usharakahshares
). /usharakahshares
. 1apitalcontribution
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Sukuk al-Musharakah (cont’d)
II. "eriodic "ayments
III. t /aturity
1orporation:
/usharik
/usharakah
!"#
!ukuk
holders
"eriodic Incentivefees"eriodic 23 of
prot
"eriodic 4$55-
263 of prot"eriodicprot
The prot generated by themusharakah-based business isdistributed periodically to the !"# andthe corporation as per the agreedprot sharing ratio
The !"# makes priodic protpayments to the sukuk holders.
1orporation:Obligor
!"#
!ukuk holders
$. "ays the"urchase "rice
&."urchasesthe/usharakah
shares
'. "ays principal toredeem capital
(. 0edeemssukuk
The corporation 4as obligor6purchases all of the !"#+smusharakah shares. 7e8t9 the !"#uses the purchase price to redeemthe sukuk. inally9 the !"# is
dissolved.
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Sukuk al-Mudarabah
• T"e S- issues sukuk to investors in e&c"ange for cas"
• T"e issuer enters into a udara!a agreeent wit" t"e originator +acting ast"e #udari!#
• Typical udara!a agreeent T"e udari! invests t"e proceeds inaccordance wit" t"e agreed !usiness plan.
• T"e pro$t generated !y t"e !usiness plan is s"ared !etween t"e issuer andt"e udari! according to a pre'agreed sc"edule
• If t"e issuer#s pro$t s"are e&ceeds t"e aount re*uired for t"e periodicdistri!ution, t"e udari! retains t"e di5erence.
• If t"e issuer#s pro$t s"are falls s"ort of t"e aount re*uired for t"e periodicdistri!ution, t"e udari! suppleents t"e di5erence.
• T"e udari! akes periodic payents to t"e issuer w"ic" are passed on to
t"e sukuk "olders.
• At t"e aturity date, t"e orginator +as o!ligor purc"ases all of t"e issuer#sowners"ip interest in t"e udara!a assets
• 6inally, t"e S- passes t"e proceeds on to t"e sukuk "olders and t"e S- isdissolved.
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Source7I68'Sukuk 9uide!ook"ttp::www.difc.ae:sites:default:
$les:attac"ed:;
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Sukuk al-Istisna’a
1ompany:obligor andproject manager
!"#
!ukuk holders
&. !ukukproceeds
$. !ukukissuance
'. "aymentmade by!"#
(. Transferownership ofassets to the!"#
;nd buyer orlessee
. Transfer of
ownership orusufruct). "eriodicpayments<sale proceeds
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Sukuk al-Istisna’a
• 1. S- issues Sukuk certi$cates to raise funds for t"e pro(ect.
• 2. Sukuk issue proceeds are used to pay t"econtractor:!uilder under t"e istisna% contract to !uild anddeliver t"e future pro(ect.
• 3. Title to assets is transferred to t"e S-
• 4. 8opleted property:pro(ect is leased or sold to t"e end
!uyer. T"e end !uyer pays periodic installents to t"e S-.•
• ;. T"e returns are distri!uted aong t"e Sukuk "olders.
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!*=*= /0=;T
!ukuk is the most
popular modern Islamic
nancial instruments.
Issuer types:
1orporate .
>overnment 0elated
;ntity.
!overeign.
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"0I/0? - >@OA@ !*=*=/0=;T
Total global sukuk issuance volume: %eclined *!%$$B.Cbln in &5$'9 D.B3 E &5$&.
"rimary market of issuances in &5$':
/alaysia as the largest issuances :
• 0educed market share of )D.D3 from
C(.53 in &5$&.
• Issuances were down $.&3 in &5$'.
=! with issuance volume of
*!%$(.Cbln 4(5.3 growth6.
*; issuance volume of *!%C.$bln
4$).D36.
Turkey growth with over )B.'3.
Ay sukuk structure during &5$':
/urabahah accounted for C.C3 of total
volume.
Ijarah accounted for ((.$3 of in the >11.
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>11 !*=*= /0=;T
>11 !ukuk issuances :
=! grew the most in &5$' to *!%$(.Cbln 4(5.36 .
The *; and Aahrain saw issuance volume increase by $).D3 and
$.'3.
The corporate sector accounted for just under half of all
issuances in the >11 in &5$'.
Guasi-sovereign issuance had a share of '$.&3.