Islamic Capital Markets 111
Sukuk al-istisna’aare certificates that carry equal value and are issued
with the aim of mobilizing the funds required for producing products that
are owned by the certificate holders. The issuer of these certificates is the
manufacturer(supplier/seller); thesubscribersarethebuyersoftheintended
product, while the funds realized from subscription are the cost of the
product. The certificate holders own the product and are entitled to the sale
price of the certificates or the sale price of the product sold on the basis of a
parallelistisna’a, if any.
Shari’a prohibition ofribaprecludes the sale of these debt certificates to a
third party at any price other than their facevalue. Clearly such certificates,
which may be cashed only on maturity, cannot have a secondary market.
Steps involved in the structure:
(a) The SPV issuessukukcertificates to raise funds for the project;
(b) Sukukissue proceeds are used to pay the contractor/builder to build and
deliver the future project;
(c) Title to assets is transferred to the SPV;
(d) Property/project is leased or sold to the end buyer. The end buyer pays
monthly installmentsto the SPV; and
(e) The returns are distributed among thesukukholders.
An example ofsukuk al-istisna’ais as follows:
The Durrat Al Bahrain, a $1 billion world-class residential and leisure
destination situated in the Kingdom of Bahrain, issued the Durratsukukto
finance the reclamation and infrastructure for the initial stage of the project.
Thesukukwas structured to provide quarterly returns with an overall
tenure of five years and an option for early redemption. The proceeds of the
issue (cash) were used by the issuer to finance the reclamation of the land
and the development of base infrastructure through multiple project finance
(istisna’a) agreements. As the works carried out under eachistisna’awere
completed by the contractor and delivered to the issuer, the issuer gives
notice to the project company under a Master Ijara Agreement to lease such
infrastructure on the basis of a lease to own transaction. During theistisna’a
period, theistisna’areceivable (amounts held as cash) was only subject to
trading at par value. Later, upon completion of theistisna’aperiod and when
lease agreements wereput in place, thesukukbecame tradable.
Hybrid sukuk
Becausesukukissuance and trading are important means of investment,
and taking into account the various demands of investors, a more diversified
type ofsukuk−hybrid or mixed assetsukuk−has emerged in this market.
In a hybridsukuk, the underlying pool of assets can comprise ofistisna’a,
murabahareceivablesaswellasijara.Havingaportfolioofassetscomprising
of different classes allows for a greater mobilization of funds. However, as
