Sukuk (Sharia-compliant) Bonds
The global market for sukuk (Sharia-compliant bonds) has grown in recent years. Total outstanding sukuk rose from $8 billion in 2003 to around $100 billion in 2008. Sukuk provides companies and governments with access to financing while also offering a much needed Sharia-compliant instrument to investors.
Background
Sukuk (plural of sakk, “legal instrument, deed, check”) is the Arabic name for a financial certificate, but commonly refers to the Islamic equivalent of bond. Sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. This is a good alternative to fixed income products, since interest bearing bonds are not permissible in Islam. The main difference between sukuk and bonds is that sukuk holders take direct ownership of an underlying asset or pool of assets, whereas a bond is purely the financial debt of the issuer. Sukuk do not pay interest; rather they generate a return through actual economic transactions in the form of sharing or leasing the underlying assets.
Conservative estimates by the Ten-Year Framework and Strategies suggest that over $1.2 trillion of assets are being managed according to Islamic investment principles. Such principles form part of Shari’ah, which is often understood to be ‘Islamic Law’, but it is actually broader than this in that it also encompasses the general body of spiritual and moral obligations and duties in Islam. In the Persian Gulf and Asia, Standard & Poor’s estimates that 20 per cent of banking customers would now spontaneously choose an Islamic financial product over a conventional one with a similar risk-return profile. Malaysia accounts for around 47 percent of global sukuk issuance by market value, followed by the GCC (Gulf Cooperation Council), which is the source of a further 46 percent. Other Sukuk issuers include institutions in Singapore, Sri Lanka, Thailand, the UK and US.
The Canadian market has been slow to market Sukuk. However the recent issuance of a North American corporate Sukuk bond should help improve visibility. In November 2009 GE (General Electric) Capital Sukuk’s were issued. They mature Nov. 26, 2014, offer a 3.875% coupon, US$, and are rated AA. The actual yield may be higher than the 3.875% coupon if they can be bought slightly below the $100 unit price.
If you are interested in buying Sukuk bonds Brent Hourd, Senior Wealth Advisor, ScotiaMcLeod can help you further. His minimum account size is $300k, but this amount can also include other investments (stocks, bonds, funds, etc) offered by ScotiaMcLeod.
Most Sukuk bonds are $100,000 minimum investment per issue, with the most easily accessible ones in US$.
Mr. Hourd can be contacted at brent_hourd@scotiamcleod.com. You can also visit http://www.advisors.scotiamcleod.com/sukukbonds. This article is only intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any investment mentioned. Speak with a Wealth Advisor before acting upon any information.
