Sukuk Securities

The essential guide to global sukuk markets worldwide

Sukuk Securities provides complete information and guidance on the latest developments in the burgeoning sukuk securities markets. Written by leading Islamic finance experts, this essential guide offers insight into the concepts, design features, contract structures, yields, and payoffs in all twelve global sukuk markets, providing Islamic finance professionals with an invaluable addition to their library. The first book to fully introduce the market, this book provides a detailed overview of the sukuk market, with practical guidance toward applying these instruments in real-world scenarios. Readers will learn how sukuk securities are regulated and the issues that arise from regulations, and gain insight into the foundation and principles of Islamic finance as applied to these instruments. Extensive tables illustrate t-test comparisons between conventional bonds and sukuk, risk factors, and the issuance of different types of sukuk securities by country to give readers a deeper understanding of the markets.

In 2010, the World Bank recommended sukuk as the best form of lending for growth in developing countries; since then, the value of new issues has grown at 45 percent per year. The market's present size is close to US $1, 200 billion, with private markets in major financial centers like London, Zurich, and New York. This book provides comprehensive guidance toward understanding and using these instruments, and working within these markets.
* Get acquainted with the sukuk market, definitions, classification, and pricing
* Learn the different approaches to structuring and contract design
* Discover how sukuk is applied, including regulations, ratings, and securitization
* Examine payoff structures and suggested sukuk valuation in the context of Islamic finance principles

With the sukuk market growing the way it is, regulators, investors, and students need to fully understand the mechanisms at work. Sukuk Securities is the complete guide to the sukuk markets, with expert insight. July 2014 saw the first sukuk listing in London. Hong Kong and Seoul have also entered this niche market. Predictions are that there will be continued high growth of sukuk debt markets around the world, all providing targeted funding via sukuk contracting modes.

Preface xi
Acknowledgments xiii
List of Tables xv
List of Figures xvii
About the Authors xix
PART ONE The Foundation of Sukuk Securities 1
CHAPTER 1 Introduction to Sukuk Markets 3
Islamic (Participation) Debt Securities 4
The Origin of Sukuk Structures 6
Contemporary Sukuk Securities 9
How Sukuk Securities Are Priced 10
The Structure of This Book 12
CHAPTER 2 Sukuk Securities: Definitions, Classification, and Pricing Issues 13
Fundamental Principles 14
Defi nitions and Regulations 20
Classifi cation Based on Practices 22
Conclusion 29
CHAPTER 3 Pragmatic and Idealistic Approaches to Structuring Sukuk 31
Shariah : The Basic Foundations of Islamic Finance and Sukuk 32
Islamic Financial Principles 35
Three Approaches to Islamic Finance 40
The History of Sukuk 41
Sukuk Structures: Pragmatic and Idealistic Approaches 44
Conclusion 55
CHAPTER 4 Contract Design and the Structure of Common Sukuk Securities Issued to Date 57
Mudarabah (Partnership) 57
Musharakah (Profit Sharing) 59
Murabahah (Markup) 62
Ijarah (Leasing) 64
Salam (Futures) 67
Istisna (Working Capital) 69
Conclusion 70
CHAPTER 5 Samples of Sukuk Issued 71
Sukuk Simpanan Rakyat (Malaysia) 71
Central Bank of Bahrain 73
Khazanah Nasional Berhad (Malaysia) 74
Qatar Central Bank 74
Nakheel Sukuk (UAE) 75
Mahan Airline Company (Iran) 75
Conclusion 76
CHAPTER 6 Contract Design and the Structure of Sukuk Securities Yet Issued 77
Wakalah (Agency) 77
Manfaah (Usufruct) 78
Muzarah (Farmland Leasing) 78
Musaqah (Orchard Leasing) 79
Muqarasah (Tree Leasing) 79
Conclusion 79
CHAPTER 7 Sukuk Securities and Conventional Bonds 81
Comparison of the Yields of Islamic Securities and Bonds 82
Yield Curves 86
The Granger Causality Test for the Yields of Sukuk and Conventional Bonds 90
Conclusion 94
PART TWO Sukuk Securities in Practice 97
CHAPTER 8 Regulations with a Difference 99
Regulating Sukuk 99
Conclusion 105
CHAPTER 9 Securitization, Trading, and Rating 107
Sukuk Trading 107
Sukuk Rating Methodologies 113
Conclusion 123
CHAPTER 10 Worldwide Sukuk Markets 125
The Geographical Location of Sukuk Securities 128
The Effect of Geographical Location on Contract Specifications 137
Conclusion 139
CHAPTER 11 Regulatory Issues for Sukuk Financial Products 141
The Current Sukuk Market 142
Regulation and Shariah Issues in the Current Sukuk Market 143
Current Sukuk Structures 145
Possible Developments and Implications 151
PART THREE Payoff Structures and Sukuk Valuation 161
CHAPTER 12 The Foundation and Principles of Islamic Finance 163
Foundation 163
Principles 164
Conclusion 167
CHAPTER 13 Cash-Flow Identification and Pattern Recognition for Theoretical Valuation Models 169
Zero-Promised Regular-Payment Sukuk 169
Fixed-Promised Regular-Payment Sukuk 171
Variable-Promised Payment Sukuk 172
Undetermined-Promised Payment Sukuk 174
Conclusion 175
CHAPTER 14 A Matter of Choice: Sukuk or Bond? 177
The Economics of Conventional Bond-Based Funding 178
World Markets for Conventional Loans 181
The Case against Interest-Based Debt with No Risk Shared 182
Are Sukuk an Alternative to Bonds? 185
Conclusion 187
CHAPTER 15 Challenges and Future Developments 189
Valuation 189
Liquidity 190
Market Widening and Market Depth 191
Cost of Issuance 191
Variation in Schools of Thought 192
Educating More Experts in Sukuk 193
Regulatory Sufficiency 194
Conclusion 195
Bibliography 197
Index 209