Description
Islamic bonds are known by the name of Sukuk, Sukuk is widely known as an Islamic or Sharia‟h compliant „Bond‟ whilst in actual facts these are asset-backed trust certificates. In its simplest form Sukuk is a certificate evidencing ownership of an asset or its usufruct
SUKUK
Islamic bonds are known by the name of Sukuk, Sukuk is widely known as an Islamic or Sharia?h compliant „Bond? whilst in actual facts these are asset-backed trust certificates. In its simplest form Sukuk is a certificate evidencing ownership of an asset or its usufruct.
Sukuk are among the best ways of financing large enterprises that are beyond the ability of a single party to finance, an ideal mean for investors seeking to deploy streams of capital, an excellent way of managing liquidity for banks and Islamic financial institutions and a means for the equitable distribution of wealth as they allow all investors to benefit from the true profits resulting from the enterprise in equal shares. Most of present day Sukuk are primarily aimed towards the conventional (fixed income) bond markets, that differ from the equity markets. They have developed to: 1. Steady and fixed income generation: pre-agreed interest rates – not dependent on any real underlying profit or loss 2. Personal liabilities and claims on the borrower (independent of the success of the project) 3. Lower risk profile than outright equity investment (mostly ranking preferential to capital contributions and often secured) 4. Usually mid-term maturity.
“Fixed income Sukuk” would probably strive to describe the following description:
1. Stabilised but not guaranteed income based on underlying assets that tend to generate stable revenue streams. 2. No personal liability on the borrower and fully dependent on the success of the project asset. 3. Lower risk profile because of specific choice asset / project and structuring 4. Ranking pari passu amongst each other; and Usually mid-term maturity.
Growth of Sukuk
The Sukuk Islamic bonds sector is a global success for the Islamic finance industry with it growing at subsequently fast rates it is a driving force for the progression of the Islamic finance industry. The Sukuk market has become an emerging sector during the years and after the global economic crisis the appeal for the market increased with many investors turning to utilize Sukuk Islamic bonds for their projects and investments .In reviewing the rapid growth of Sukuk it is imperative to look at the development which aroused the emerging sector when it was in its infancy.
Growth of Sukuk from 2004 – 2012 in UAE, mentioned in the below chart.
Table
Growth Rate of SUKUK IN UAE 2004 2006 No of Issue 3 7 USD (Billion) 1.165 8.755 % of Growth 652%
2007 11 10.88 24%
2012 18.7 72%
Sukuk Across the Globe
The GCC and the UAE have made several milestones throughout the years in the issuance of Sukuk and with the Islamic financial sector set to rise there is much scope for the countries to further develop Sukuk issuances .Many countries around the world such as Qatar have made unprecedented developments in the Sukuk arena .Europe has also been making progressive developments in the Sukuk arena.
•
Europe has also been making progressive developments in the Sukuk arena. The Sukuk market in Europe grew by a massive 75% to US $85 billion in total outstanding issues in the first half of 2007.The US $24.5 billion of funds raised in the first half nearly surpassed the total amount of new issuance in 2006 of US $26.8 billion.
•
Germany and France are also making progressive developments in Sukuk Islamic bonds. Germany was the first country to issue Sukuk in Europe as in September 2004Saxony-Anhalt became the first state government in Germany and Europe to issue a sub sovereign bond under Islamic principles. The €100 million bond does not offer interest payments to its investors and Germany abided by the sharia principles outlined for issuing the first Sukuk.
•
Overall the main issuers of European Sukuk in UK, France and Germany exhibit potential to further develop the Sukuk industry.
•
Sukuk in Canada also flourished between the years of 2009 to 2010 and Siraj Capital Dubai which had also helped to issue America?s first Sukuk issuance had also been proactive in launching Canada?s debut Sukuk.
•
The Sukuk
market has been the driver of growth for the Malaysian Islamic Market with many
worlds? first issues, cemented by sizable amount and innovative structures. Malaysia is one of the largest Sukuk issuance centres in the world and accounts for approximately two-thirds of the global Sukuk outstanding. Bursa Malaysia also provides a facilitative and progressive environment for Sukuk issuance by local and international issuers. Issuing Sukuk in Malaysia is cost-effective as International Issuers have the flexibility to issue either ringgit or non-ringgit denominated Sukuk using international documentation, based on UK or US laws and the choice of international credit rating agencies.
Sukuk issuance over the past 10 years between Saudi and Malaysia
There is no comparison between the size of the Malaysia economy and the oil kingdom. With the Saudi government opening up the biggest Arab stock market and planning to spend $400 billion on its infrastructure, there are plenty of deals to chase in the Kingdom, which benefits from high oil prices where as smaller economy country like Malaysia managed to steer up the corporate market and come up with 952 issuances of Sukuk.
Table Comparision of Sukuk Malaysia Saudi Arabia Corporate Deals 952 21 $ Billion 49884 14210
Highlighting the Growing Sukuk and Takaful Sector in Qatar through the World Cup
The Qatar 2022 World Cup has the potential to highlight the many benefits of the growing Sukuk sector of Islamic bonds, for Qatar?s Muslim and non-Muslim investors, entrepreneurs and business professionals. Qatar has major scope for Sukuk deals; in 2011, especially, the country was reported to have exhibited a positive outlook for stability. In that year, Qatar?s largest investment bank, Invest, saw Islamic bond issuances stabilise to benefit movement. It is important to consider the system of Sukuk, and its implementation in Qatar, in order to establish the situation for investments.The Sukuk system is outlined in the diversification of the State of Qatar?s funding sources shows promise for future issuances of Sukuk, which could attract a global market.
3.5 Two Types of Sukuk
• • Held to Maturity Traded Sukuk
Islamic banks issue Sukuk as a mechanism to mobilize savings, and their issuance can be diversified and expanded to benefit from the opportunities existing for these financial market instruments. However, the growth in the Sukuk instruments will only be accomplished when liquidity is provided to its bearers.
The Sukuks will bolster the activities of Islamic banks as it is considered an acceptable instrument from the Shariah standpoint for investing liquid funds, in good returns, and lowering risk. Using Sukuk as a financial instrument of various capabilities is suitable for a wide variety of economic performance aspects on an international scale. Some of their main advantages are to increase the capital available to develop major economic projects, to control liquidity, to use funds in an optimum manner, and to increase the size of capital markets for investors.
Several indices were developed to measure their performance in the financial marketplace. The DowJones Islamic Market (DJIM) Index, the Dow Jones Citigroup Sukuk Index, measure the performance of Sukuk. In Kuwait, the Al Madar Finance Company developed a ShariahCompatible Index-Series a series of twelve Shariah-compliant indexes for the Kuwait equity market.
doc_171416152.pdf
Islamic bonds are known by the name of Sukuk, Sukuk is widely known as an Islamic or Sharia‟h compliant „Bond‟ whilst in actual facts these are asset-backed trust certificates. In its simplest form Sukuk is a certificate evidencing ownership of an asset or its usufruct
SUKUK
Islamic bonds are known by the name of Sukuk, Sukuk is widely known as an Islamic or Sharia?h compliant „Bond? whilst in actual facts these are asset-backed trust certificates. In its simplest form Sukuk is a certificate evidencing ownership of an asset or its usufruct.
Sukuk are among the best ways of financing large enterprises that are beyond the ability of a single party to finance, an ideal mean for investors seeking to deploy streams of capital, an excellent way of managing liquidity for banks and Islamic financial institutions and a means for the equitable distribution of wealth as they allow all investors to benefit from the true profits resulting from the enterprise in equal shares. Most of present day Sukuk are primarily aimed towards the conventional (fixed income) bond markets, that differ from the equity markets. They have developed to: 1. Steady and fixed income generation: pre-agreed interest rates – not dependent on any real underlying profit or loss 2. Personal liabilities and claims on the borrower (independent of the success of the project) 3. Lower risk profile than outright equity investment (mostly ranking preferential to capital contributions and often secured) 4. Usually mid-term maturity.
“Fixed income Sukuk” would probably strive to describe the following description:
1. Stabilised but not guaranteed income based on underlying assets that tend to generate stable revenue streams. 2. No personal liability on the borrower and fully dependent on the success of the project asset. 3. Lower risk profile because of specific choice asset / project and structuring 4. Ranking pari passu amongst each other; and Usually mid-term maturity.
Growth of Sukuk
The Sukuk Islamic bonds sector is a global success for the Islamic finance industry with it growing at subsequently fast rates it is a driving force for the progression of the Islamic finance industry. The Sukuk market has become an emerging sector during the years and after the global economic crisis the appeal for the market increased with many investors turning to utilize Sukuk Islamic bonds for their projects and investments .In reviewing the rapid growth of Sukuk it is imperative to look at the development which aroused the emerging sector when it was in its infancy.
Growth of Sukuk from 2004 – 2012 in UAE, mentioned in the below chart.
Table
Growth Rate of SUKUK IN UAE 2004 2006 No of Issue 3 7 USD (Billion) 1.165 8.755 % of Growth 652%
2007 11 10.88 24%
2012 18.7 72%
Sukuk Across the Globe
The GCC and the UAE have made several milestones throughout the years in the issuance of Sukuk and with the Islamic financial sector set to rise there is much scope for the countries to further develop Sukuk issuances .Many countries around the world such as Qatar have made unprecedented developments in the Sukuk arena .Europe has also been making progressive developments in the Sukuk arena.
•
Europe has also been making progressive developments in the Sukuk arena. The Sukuk market in Europe grew by a massive 75% to US $85 billion in total outstanding issues in the first half of 2007.The US $24.5 billion of funds raised in the first half nearly surpassed the total amount of new issuance in 2006 of US $26.8 billion.
•
Germany and France are also making progressive developments in Sukuk Islamic bonds. Germany was the first country to issue Sukuk in Europe as in September 2004Saxony-Anhalt became the first state government in Germany and Europe to issue a sub sovereign bond under Islamic principles. The €100 million bond does not offer interest payments to its investors and Germany abided by the sharia principles outlined for issuing the first Sukuk.
•
Overall the main issuers of European Sukuk in UK, France and Germany exhibit potential to further develop the Sukuk industry.
•
Sukuk in Canada also flourished between the years of 2009 to 2010 and Siraj Capital Dubai which had also helped to issue America?s first Sukuk issuance had also been proactive in launching Canada?s debut Sukuk.
•
The Sukuk
market has been the driver of growth for the Malaysian Islamic Market with many
worlds? first issues, cemented by sizable amount and innovative structures. Malaysia is one of the largest Sukuk issuance centres in the world and accounts for approximately two-thirds of the global Sukuk outstanding. Bursa Malaysia also provides a facilitative and progressive environment for Sukuk issuance by local and international issuers. Issuing Sukuk in Malaysia is cost-effective as International Issuers have the flexibility to issue either ringgit or non-ringgit denominated Sukuk using international documentation, based on UK or US laws and the choice of international credit rating agencies.
Sukuk issuance over the past 10 years between Saudi and Malaysia
There is no comparison between the size of the Malaysia economy and the oil kingdom. With the Saudi government opening up the biggest Arab stock market and planning to spend $400 billion on its infrastructure, there are plenty of deals to chase in the Kingdom, which benefits from high oil prices where as smaller economy country like Malaysia managed to steer up the corporate market and come up with 952 issuances of Sukuk.
Table Comparision of Sukuk Malaysia Saudi Arabia Corporate Deals 952 21 $ Billion 49884 14210
Highlighting the Growing Sukuk and Takaful Sector in Qatar through the World Cup
The Qatar 2022 World Cup has the potential to highlight the many benefits of the growing Sukuk sector of Islamic bonds, for Qatar?s Muslim and non-Muslim investors, entrepreneurs and business professionals. Qatar has major scope for Sukuk deals; in 2011, especially, the country was reported to have exhibited a positive outlook for stability. In that year, Qatar?s largest investment bank, Invest, saw Islamic bond issuances stabilise to benefit movement. It is important to consider the system of Sukuk, and its implementation in Qatar, in order to establish the situation for investments.The Sukuk system is outlined in the diversification of the State of Qatar?s funding sources shows promise for future issuances of Sukuk, which could attract a global market.
3.5 Two Types of Sukuk
• • Held to Maturity Traded Sukuk
Islamic banks issue Sukuk as a mechanism to mobilize savings, and their issuance can be diversified and expanded to benefit from the opportunities existing for these financial market instruments. However, the growth in the Sukuk instruments will only be accomplished when liquidity is provided to its bearers.
The Sukuks will bolster the activities of Islamic banks as it is considered an acceptable instrument from the Shariah standpoint for investing liquid funds, in good returns, and lowering risk. Using Sukuk as a financial instrument of various capabilities is suitable for a wide variety of economic performance aspects on an international scale. Some of their main advantages are to increase the capital available to develop major economic projects, to control liquidity, to use funds in an optimum manner, and to increase the size of capital markets for investors.
Several indices were developed to measure their performance in the financial marketplace. The DowJones Islamic Market (DJIM) Index, the Dow Jones Citigroup Sukuk Index, measure the performance of Sukuk. In Kuwait, the Al Madar Finance Company developed a ShariahCompatible Index-Series a series of twelve Shariah-compliant indexes for the Kuwait equity market.
doc_171416152.pdf