1- Definitions

 In this section, some technical words are defined.

Sukuk: Sukuk is sometimes referred to as the Islamic bond; it is better described as an asset based investment as the investor owns an undivided interest in an underlying tangible asset which is proportionate to his investment. The Sukuk certificate evidences this ownership interest. Monies raised by the issue of the Sukuk note are used to invest in an underlying asset, a trust is declared over that asset and thereby the certificate holder will own a beneficial interest in that asset in proportion to its investment and is therefore entitled to all the benefits that entails including a proportion of the return generated by that asset.


Hamish Jiddiyyah: in the case of a binding MPO, the risk of selling at a loss is mitigated by securing a Hamish Jiddiyyah (HJ). It's a security deposit held as collateral upon entering into agreement to purchase or agreement to lease. 


Sharia: is the body of Islamic religious law. It is the legal framework within which the public and private aspects of life are regulated for those living in a legal system based on Islamic principles of jurisprudence. Sharia deals with many aspects of day-to-day life, including politics, economics, banking, business, contracts, family, sexuality, hygiene, and social issues.


PSIA: Profit Sharing Investment Account is a financial instrument that is relatively similar to the time deposits of conventional banks. According to the terms and conditions of PSIA, depositors are entitled to receive a share of the bank's profits, but also obliged to bear all potential losses pertaining to their investment in the bank. This profit-sharing principle is core to Islamic finance, according to which investors and entrepreneurs must share the risks and rewards of a given venture.

A PSIA can be further categorised into: Unrestricted PSIA and Restricted PSIA. The Bank has full discretionary power in making investment decisions for unrestricted PSIA, but in the case of the restricted PSIA the placement of funds by the Bank is subject to investment criteria contract or agreed between the investment account holders (IAH) and the Bank at the time of contracting.


2-Sukuk's principle


Generally, Sukuk are asset-backed, stable income, tradable and Sharia compatible trust certificates. The primary condition of issuance of Sukuk is the existence of assets on the balance sheet of the banking and financial institution or any entity which wants to mobilize the financial resources. The identification of suitable assets is the first, and arguably most integral, step in the process of issuing Sukuk certificates.

The proper classification of the asset classes will also determine the type of certificates to be issued. It is imperative to note that these assets can be prepared for the issuance of trust certificates in a number of ways conditional to the need of the issuing entity. 

Example of traditional Sukuk al Ijarah

Example of traditional Sukuk Musharakah

3-    Case study: Qatar Global Sukuk


Qatar Global Sukuk QSC was incorporated as a joint stock company in Doha during October 2003, established as a joint-venture special purpose vehicle (SPV) by the government of Qatar, Qatar International Islamic Bank (QIIB) and HSBC. On 8th October, 2003 the government of Qatar issued U.S. $700 million worth of Trust Certificates (Sukuk) due 2010. The proceeds from this issuance were utilized to finance the construction and development of the Hamad Medical City located in Doha, Qatar.

Each certificate holder has an undivided beneficiary right to the land parcel (which is the medical complex) between October 2003 and 2010. Under the arrangement, the SPV buys the parcels from the government of Qatar and re-sells them to the buyers of the issues. It does so by buying the beneficiary rights and keeping them as a trust and issuing trust certificates Sukuk to the investors. The distribution dates are the ninth day of every April and October. The periodic distributions are floating rate which are calculated for the first four distribution dates using the equation:


(LIBOR for the return accumulation period plus margin of 0.4%) x ($700 M) x                               (number of days in return accumulation period/360)                                                           


After the first four distribution dates, the periodic distribution is calculated as:


 Amortization Payment + (LIBOR for such return accumulation period plus margin of 0.4%) x  ($700 M) x (number of days in return accumulation period/360)


The SPV, on behalf of the investor, leases the land parcel back to the government of Qatar in conformity with the Master Ijarah Agreement. Under the terms of the agreement between the issuer (lessor) and government (lessee) the rental payments will be calculated semi-annually (in April and October) with reference to LIBOR plus the margin, and will equal the periodic distribution amounts payable on the respective dates. These rental payments are equivalent to the semi-annual distribution funds. The returns are guaranteed by the government of Qatar, and thus replicate floating rate Qatari sovereign debt instruments. The certificates were rated A+ by Standard & Poor's (S&P) and applications were proposed to be made to list the issuances on both the Luxembourg Stock Exchange and the Labuan International Financial exchange (Malaysia).

The Qatar Sovereign Ijarah Sukuk Structure

            1 The government of Qatar sells land parcels valued at U.S. $ 700 M

            2 The purchase price is U.S. $ 700 M

            3 The SPV leases out the land parcels back to the government of Qatar

            4 The government of Qatar pays semi-annual lease rentals

    6 The SPV disburses semi-annual distribution payments equal to the government's rental payments.

            7 Investors (both Islamic and conventional) secure the Sukuk issuances.

        8 The investors are reimbursed periodically by the distributions from the SPV funded by the government rental payments on the land parcels.

4-Stages of Sukuk.


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