Sukuk Securities: New Ways of Debt Contracting

CHAPTER 9 Securitization, Trading, and Rating

This chapter provides an introduction to the market-making process used by the players in the Islamic debt securities marketplace. The process of structuring a sukuk contract is vastly different from its conventional counterpart in two respects: Sukuk funding is targeted funding, compared to general-purpose lending in conventional debt, and the mode of pricing is based on the sharing of profit and loss. Both aspects, along with the asset-backing principle, make for a unique securitization process, very different from that of conventional banking practices.

SUKUK TRADING

Sukuk, like other financial securities, can be offered only after meeting all the requirements of the relevant rules and regulations of the countries where they are structured for issue. Its initial public offering (IPO), disclosure requirements, and structure of a special purpose company (SPC) are discussed in the following subsections.

Sukuk Securitization as IPO

The essence of sukuk, from a modern perspective, lies in the concept of asset monetization (i.e., securitization), which is achieved through the process of sukuk issuance, known as taskeek. Its great potential is in transforming an asset’s future cash flow into present cash flow. Taskeek usually takes place in the primary market where the issuing company will sell debt certificates (sukuk) to investors. The Liquidity Management Center of Bahrain listed the following steps in the issuance of sukuk ...