Module VI·Article II·~1 min read
Types of Sukuk
Sukuk and Islamic Finance
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Types of Sukuk
Sukuk: Islamic bonds Sukuk (plural from "sakk" — certificate) are Islamic financial certificates, similar to bonds but structured to comply with Sharia. The global sukuk market exceeds $700 billion. Sukuk vs Traditional Bonds ParameterTraditional BondSukuk Legal natureDebt obligationEquity participation in an asset Investor incomeInterestProfit from asset CollateralOften unsecuredAlways asset-linked In defaultClaim on issuerClaim on underlying asset Sharia screeningNot requiredMandatory (Sharia Board) Main Types of Sukuk TypeMechanicsMarket ShareExamples Sukuk al-IjaraSPV buys an asset, leases it out. Investors receive rental payments50%Real estate, equipment Sukuk al-WakalaSPV manages a pool of assets as agent. Investors receive profits25%Diversified portfolios Sukuk al-MurabahaSPV buys goods and sells them on installment with a markup15%Trade finance Sukuk al-MusharakaJoint ownership of a project with profit sharing5%Infrastructure projects Sukuk al-IstisnaFinancing of manufacturing/construction5%Construction Structure of a Typical Sukuk al-Ijara Originator (issuer) sells asset to SPV SPV issues sukuk certificates to investors Originator leases asset back from SPV Rental payments → distributed to investors At maturity: Originator buys back asset at a pre-agreed price Key Sukuk Issuers IssuerTypeRatingTypical Size Kingdom of Saudi ArabiaSovereignA$5-10 billion UAE (Federal)SovereignAA$1-3 billion Islamic Development BankSupranationalAAA$1-2 billion Dubai Islamic BankFinancialA-$500 million - 1 billion Petronas (Malaysia)CorporateA-$1-3 billion Emaar PropertiesCorporateBBB$500 million Sukuk Indices IndexDescriptionYield (approx) Dow Jones Sukuk IndexGlobal USD sukuk5% S&P Sukuk IndexInvestment Grade sukuk4.5% Bloomberg MSCI Sukuk IndexESG-compliant sukuk4.5% Investment Characteristics of Sukuk Yield: Usually 10-30 bp lower than comparable conventional bonds Duration: 3-7 years (average term) Rating: Predominantly IG (70%+) Liquidity: Lower than conventional bonds Volatility: Comparable to IG bonds
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