Islamic bond issuance: what sovereign debt managers need to know

Abstract

This Policy Discussion Paper should not be reported as representing the views of the IMF. The views expressed in this Policy Discussion Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Policy Discussion Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Recent years have witnessed a surge in the issuance of Islamic capital market securities (sukuk) by corporates and public sector entities amid growing demand for alternative investments. As the sukuk market continues to develop, new challenges and opportunities for sovereign debt managers and capital market development arise. This paper reviews the key developments in the sukuk market and informs the debate about challenges and opportunities going forward.

Halal Certification for Financial Products: A Transaction Cost Perspective

“…well developed Islamic finance industry of all Muslim countries, mainly due to strong government support (Jobst et al, 2008). Data from Funds@Work (not shown here) also indicates that the top Sharia scholars tend to sit in the same boards together.…”

THE LESS-INTERRESTED OF ISLAMIC BANK FOR ISSUING SUKUK: Factors and Recommendations

“…The amount of additional funding needs for companies Additional funding needs ; Nagano (2010); Said (2011); Elshazly and Tripathy (2013); Rezaei (2013); Abdo (2014) The company's ability to pay back the fund investor at maturity of sukuk Company rentability Siswantoro (2013); Zaheer and Wijnbergen (2013); Shahar et al (2014) Conditions of macro-economic indicators that are or will happen Emission Values Macroeconomic condition Said (2011); Said and Grassa (2013); Awaludin and Masih (2015) Reputation / image of the company or company size as seen from the total assets owned by the company Reputation/ company size Said and Grassa (2013); Zakaria et al (2013); Shahar et al (2014) The amount of the profit sharing ratio / fee / service agreed with the investors in sukuk prospectus Amount of profit sharing/ margin/fee Abdo (2014); Paltrinieri et al (2015) Management of mismatch that occurs between the average term of the financing DPK / existing projects Period Managingmismatch Jobst et al (2008); Paltrinieri et al (2015) Expectations related to expectations of return desired by investors The expectations of investor BAPEPAM-LK (2009); Awaludin and Masih (2015) Consideration in comparing the return sukuk that exist in the local sukuk market Benchmark market Tariq and Dar (2007); Zaheer and Wijnbergen (2013); Shahar et al (2014); Awaludin and Masih (2015) Return Type/ asset performance Choice of type of asset or asset performance is the source of income in the issuance of sukuk…”

Sukuk Defaults: On Distress Resolution in Islamic Finance

“…For sovereign issuers there can also be a cost of capital advantage in sukuk issuance because of the higher credit rating owing to their asset-backed structure and because they offer a broader and diversified global investors base (Jobst, Kunzel, Mills and Sy (2008 )). The Saxony-Anhalt ijarah sukuk, for instance, exhibits obvious price benefits of shariah-compliant sukuk issuance 2 http://www.reuters.com/article/2013/05/29/saudi-isdb-sukuk-idUSL5N0EA28620130529 3 The corresponding SPV was established in Netherlands to get tax benefits.…”

“…over conventional bonds. In 2004, the German state borrowed USD1.2 billion through interest based covered bonds at EURIBOR plus 17 basis points on average, whereas its primary sukuk were priced at a spread of only 1 basis point, that saved USD192,000 per year for the State's Treasury (Jobst, Kunzel, Mills and Sy (2008 )). …”