112 Islamic Finance in Practice
murabahaandistisna’acontracts cannot be traded on secondary markets as
securitized instruments, at least 51 per cent of the pool in a hybridsukuk
must comprise ofsukuktradable in the market, such as anijara sukuk.Due
to the fact themurabahaandistisna’areceivables are part of the pool, the
return on these certificates can only be a pre-determined fixed rate of return.
Steps involved in the structure:(a) The Islamic finance originator transfers tangible assets as well as
murabahadeals to the SPV;
(b) The SPV issues certificates of participation to thesukukholders and
receive funds. The funds are used bythe Islamicfinance originator;
(c) Islamic finance originator purchase these assets from the SPV over an
agreed period of time; and
(d) Investors receive fixed payment of return on the assets.An example of a hybridsukukis as follows:
The Islamic Development Bank (IDB) issued the first hybridsukukof
assets comprising 65.8 per centijaraassets, 30.73 per cent ofmurabaha
receivables and 3.4 per centistisna’aassets. This issuance required the
IDB’s guarantee in order to secure a rating and international marketability.
The $400 million Islamicsukukwas issued by Solidarity Trust Services
Limited (STSL), a special purpose company incorporated in Jersey Channel
Islands. The Islamic Corporation for the Development of Private Sector
played an intermediary role by purchasing the asset from IDB and selling it
to STSL at the consolidated net asset value.Tradability of sukuks
As noted earlier, some of the structures do not easily support tradability of
thesukukcertificates at market prices. Depending upon the nature of
underlying assets and the school of thought, the tradability and negotiability
of issued certificates is determined. The majority ofsukukissued to date are
based on two classes of assets. The first class of assets fall into financial
claims created from:- spot sale and deferred payment (murabaha); and
- spot payment withdeferred delivery (salam/istisna’a) contract.
As these structures result insukukcertificates somewhat de-linked from
the risk/return of the underlying assets, these are treated as pure debt
securities. Consequently, many investors, including those in the GCC
countries cannot trade thesesukukin the secondary market, either at a
discount, or at a premium. Trading can be undertaken at par but any
reference to market value would introduce a mechanism to indulge inriba
or interest in the transaction. Such structures have been used but mainly