Sukuk (plural Sakk) are the Islamic equivalents of bond financing for the companies and sovereign issuers who wish to comply with the principles of Sharia. These are financial products backed by a tangible asset and fixed maturity, sakk confers a right of ownership over the assets of the issuer, and its holder receives a portion of the profit attached to the productivity of the underlying asset. Thus, the interest is replaced by a profit envisaged in advance with almost zero risk. This form of obligation is similar to asset-backed securities, with the difference that sukuk does not pay interests but income correlated with the underlying assets.
Sukuk are a means of financing but above all a means of mobilizing the Savings. They enable to pay for an investment by avoiding the use of interest (Riba). Thus, the investor owns a share of ownership in the underlying asset. In return, it provides him with an income. For this, the issuing company must identify the assets intended for sale in order to propose them to Sukuk investors. This transaction is performed with the intervention of an ad hoc company, called SPV (Special Purpose Vehicle). Then, the investors will receive the usufruct of these assets based on the proportion of their investment.
In case of real estate financing where Sukuk are particularly used, SPV acquires the property and gives it on lease to the bank or the issuing company. Rents from leasing will constitute the revenues on which remuneration for Sukuk holders will be based. And the transaction is closed either gradually by divided payment of the paid-up capital , or at end of the contract, with repurchase of the property by the issuer.
The risks of this transaction are shared: Investors bear the credit risks for the issuer and risks related to the assets are borne by SPV. In case of failure of debtor, the investors are protected by their title deed, but they can also benefit from an option to sell to the group that organized the transaction that is parallel with the purchase option that the company holds under its Leasing.
Through the principle of Sukuk, the technique of securitization in the spirit of Islamic finance is much better mastered because it can cover only the securities backed by tangible assets. According to AAOIFI, at least 14 terms of structuring of Sukuk are possible. In practice, the most widely used are:
* Sukuk al Ijara : asset-backed without explicit reimbursement guarantee: the debt and assets are inseparable.
* Sukuk al Musharaka: asset-based with explicit guarantee by the issuer.
* Sukuk al Wakala/Mudaraba
* Sukuk al Istisnaa
There are also two types of sukuks issuance:
* Sovereign: Issued by a State.
* Corporate: Issued by a company, bank.
Finally, Sukuk have the characteristic of not being noted and rated depending on the target market.