SUKUK

SUKUK (Islamic Bonds)

Assalamu'alaikum wr.wb

A. Definition of Sukuk

Islamic bond or sukuk is well described as 'Trust Certificates' or 'Participation Securities' that grants the investor a share of an asset along with the cashflows and risk commensurate with such ownership. The central merit of the sukuk structure is that it is based on real underlying assets. This approach discourages over-exposure of the financing facility beyond the value of the underlying asset,
given that the issuer cannot leverage in excess of the asset value.
AAOIFI defines Sukuk as being: “Certificates of equal value representing after closing subscription, receipt of the value of the certificates and putting it to use as planned, common title to shares and rights in tangible assets, usufructs and services, or equity of a given project or equity of a special investment activity”.

B. Comparison with Bonds
A bond is a contractual debt obligation whereby the issuer is contractually obliged to pay to bondholders, on certain specified dates, interest and principal, whereas, the sukuk holders claims an undivided beneficial ownership in the underlying assets. Consequently, sukuk holders are entitled to share in the revenues
generated by the sukuk assets as well as being entitled to share in the proceeds of the realization of the sukuk assets. A distinguishing feature of a sukuk is that in instances where the certificate
represents a debt to the holder, the certificate will not be tradable on the secondary market and instead is held until maturity or sold at par.

Wassalamu'alaikum wr.wb
SW
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