Entries in English and Malay (Bahasa Melayu)

Thursday, 14 August 2014

IMF study finds not all sukuk are created equal

NEW YORK, Aug 13 — Investors treat a company’s shares differently depending on the specific types of Islamic bond it issues and the reputation of the Islamic scholars who oversee the instruments, a study by the International Monetary Fund found.

The study, published this week, is one of the first systematic efforts to establish a numerical link between investors’ behaviour and sukuk structures, and as such it may influence companies to choose certain structures over others.
The IMF based its findings on the stock price movements of companies, which issued sukuk between 2006 and 2013, using a sample of 131 sukuk deals across eight countries including Qatar, Saudi Arabia, the United Arab Emirates and Malaysia.
Global sukuk issuance could reach US$130 billion (RM416.97 billion) in 2014, according to a Thomson Reuters study. About a dozen types of sukuk are in use worldwide.
All of them claim to follow religious principles such as bans on interest payments and pure monetary speculation, but some resemble conventional bonds in important ways while others have equity-like characteristics.
The study found the ijara structure tended to draw a positive reaction from the stock market, with the shares of companies using that structure performing relatively well.
Ijara is a lease-based transaction where the originator sells assets to a special-purpose vehicle, which issues sukuk certificates to obtain money to pay for the assets; actual ownership of the assets does not necessarily change hands.
By contrast, equity-based structures such as musharaka — an investment partnership where profits and losses are shared under agreed ratios — met a relatively negative reaction.
This was apparently because equity-like structures were often perceived as signals of financial weakness at the issuing companies, the IMF said. Investors felt an issuer expecting to realise a low profit would have more of an incentive to share the profit; an issuer expecting high profits would choose a debt-like instrument to maximise its bottom line.
The study could increase the use of ijara as the structure of choice for new issuers around the world. Britain used ijara in its first sovereign sukuk issue this year, and Luxembourg plans to use the structure in its maiden deal later this year.
The IMF also looked at other characteristics of sukuk such as their tenors and pricing, but did not find these factors to be statistically significant for the responses of equity market investors.
Boards of sharia scholars at financial institutions issuing sukuk rule on whether the Islamic bonds follow religious principles. A small number of prominent scholars around the world sit on multiple boards, commanding big fees for doing so.
The IMF study suggested institutions were rational in paying such fees; the market preferred the shares of companies which had the most respected scholars endorsing its sukuk.
Geographical proximity was also important, as the market favoured companies with scholars who were most familiar with local rules and practices, rather than scholars from remote jurisdictions.
But the study found that the size of an institution’s sharia board, and the length of the relationship between individual scholars and the institution, did not have an impact.
“Our findings support the view that the market premium paid for sharia scholar reputation and proximity with issuer may be justified,” the study said.
“However, the certification requirement should not overprice having a large number of scholars involved or their tenure, as these factors are not associated with a significant premium in terms of market valuation.
(Malay Mail Online / 13 August 2014)
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Law firm's Islamic finance team enjoys growing success

One of the Westcountry’s biggest regional law firms is making waves internationally thanks to its specialist Islamic finance team.
Foot Anstey’s Islamic Finance team has enjoyed one of its busiest months in June when its experts completed two significant transactions for 90 North, an independent investment advisory firm, specialising in Shari'ah compliant real estate investments.
The team is the only one providing this specialism in the UK, outside of London.
Partner and head of the fast growing team, Imam Qazi together with support from associate Ben Brodie completed the £10.9 million sale of 90 North's L'Oreal LUXE logistics headquarters at Sherwood Park.
Following on, the team advised and completed a structured investment into a substantial residential development at Crossharbour, near Canary Wharf.
Mr Qazi said the fast growing, busy team was continuing apace and most recently welcomed Islamic finance director, Fara Mohammad from Norton Rose Fulbright.
The team, which covers the whole country for Foot Anstey and has 10 staff, provides a range of services and bespoke Islamic finance advice to a number of key players in the UK Islamic finance market and advises conventional and shariah compliant financial institutions, investment advisory firms and Middle Eastern investors on high-value, complex transactions.
Set up just three years ago, the Islamic Finance team has won work and advised on projects across the country and globe.
The team is led by Mr Qazi, who earlier this year was recognised by the trade journal The Lawyer as being amongst the most "innovative and inspirational" lawyers in the legal industry lawyers by his appearance in the Hot100.
He said: "The Islamic Finance market is buoyant and we are delighted to be at the heart of this important financial industry for the UK.
"The first six months of the year have been busy and we're looking forward to continuing in this vein.”
(Western Morning News / 13 August 2014)
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Latest Posts

Upcoming Events on Islamic Finance, Wealth Management, Business, Management, Motivational

Alfalah Consulting's facebook


Alfalah Consulting is NOT providing any kind of loan to finance project etc and asking for a fee. If you've received any email claiming to be from Alfalah Consulting, offering loan to you, please ignore it or inform us for further actions. Our official email is If you've received an email from, that's NOT from us. Be cautious!