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Sukuk Market in Saudi Arabia

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Abdulmajeed Alharbi

on 11 November 2014

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Transcript of Sukuk Market in Saudi Arabia

Sukuk Market in Saudi Arabia
Overview of Sukuk


A bond is a long term debt obligation in which the issuer borrows money from bondholders, promising to pay the bondholders
interest
or regular
coupon payments
and to repay the principal (par value) at maturity.
In Islamic finance interest are
prohibited
.
Islamic bonds or Sukuks are a financial certificate, Sukuk is a trust certificate in which investors returns are derived from beneficial ownership of assets or particular investments.
The return provided to Sukuk holders therefore come in the form of profit from a sale, rental or a combination of both.
Comparison
Between
Different Financing Tools
Sukuk and Bond have number of characteristics
which should be aware of :

Issuer:
The issuing organization can be either a government-related entity or a private entity.
Type of sakk/bond:
Murabaha, Musharakah, Ijarah, and investments.
Term to maturity:
The total amount of time between when a sakk is issued and when the same sakk matures.
Maturity Date:
The date on which the sakk investor will be repaid the par value of the sakk.
Par Value:
The value of the issued sakk a holder would receive at maturity.
Annual return:
The percentage of the par value which represents the annual return of the sakk or bond. The return may be divided into quarterly, semiannual, or annual payments.
Importance
Of Islamic Sukuk
•Access to the idea of Islamic instruments to the level of the global trading illustrates the extent of capacity , wisdom and integrity of the Islamic regulation.
•Provide an opportunity for central banks to use the instruments within the framework of Islamic monetary policy in accordance with the Islamic perspective
•Meet the needs of the state in the financing of infrastructure projects and development


•Help improve the profitability of financial institutions , companies and their financial positions
•Instruments tool helps to transparency , and improve the structure of information in the market


Types
Of Sukuk Securities
Sukuk Al-Ijara:
The investors are the owners of the asset and are entitled to receive a return when that asset is leased.
Sukuk Al-Manafa:
owning the benefits to Sukuk holders through the rental service to them during a certain period is the period of validity of the instrument.


Sukuk Al-Salam:
an asset is delivered to a buyer on a future date in exchange for full advance spot payment to the seller. Sharia allows only salam and istisna contracts to be used to support advanced payment for a good to be delivered in the future.

Sukuk Al-Istisna:
Istisna is a contract between a buyer and a manufacturer in which the manufacturer agrees to complete a construction project by a future date.

Sukuk Al-Murabaha:
A murabaha contract is an agreement between a buyer and seller for the delivery of an asset; the price includes the cost of the asset plus an agreed-upon profit margin for the seller.
Sukuk Al-Musharaka:
The musharaka contract supports a joint venture business activity in which all partners contribute capital, labor, and expertise. The profit and losses are shared among all parties based on agreed-upon ratios.

Sukuk Al-Mudaraba:
In simple mudaraba contracts, investors are considered to be silent partners, and the party who utilizes the funds is the working partner. The profit from the investment activity is shared between both parties based on an initial agreement.

Sukuk Markets in Islamic Countries
Sukuk have gained great popularity over the past five to 11 years.
Sukuk start in Malaysia in 2002 with the billion dollars.
Malaysia the largest Muslims countries that issuing Sukuk.
Gulf Cooperation Council (GCC) region estimated by US$37.6bn in 2007, accounting for about 60% of the global Sukuk market.

Saudi Basic Industries Corporation (SABIC) is a diversified manufacturing company, active in chemicals , industrial polymers, fertilizers and metals.
Sukuk was issued on the 29th July 2006.
The unique structure that was tailor-made for SABIC is a Sukuk Istithmaar (Investment Sukuk).
Investment Sukuk is one of the main categories of Sukuk types included in the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah Standards.
Each of the Sukuk expiring May 2028 .
SABIC Sukuk holders will get the specific amount of sales an d profit of that project is setup by Sukuk funds.
SABIC to give Sukuk holders a right to sell their Sukuk certificates in Sukuk secondary market.
Excess income from the Sukuk assets, after paying the periodic profit distribution amounts to the Sukuk holders the amount will be kept in a reserve.

SABIC Sukuks Offering
Popular Saudi Arabian companies that issuing Sukuks
Presents by
Mohammed Aldossari
Hamad Aldossari
Abdulmajeed Alharbi
Thank You
Full transcript