Sukuks need restructuring for a wider acceptance globally

The restructuring of sukuk or Islamic bond will make this rapidly growing segment of the Islamic finance as more acceptable by the investors world-wide, an academician and Islamic finance expert said.

“The perception of the investors about the sukuk is not clear as currently sukuk or Islamic bonds are not seen as positive like debt securities,” Dr Rimma Turk who is professor at Beirut University told the audience on the day two of the AAOIFI-World Bank Islamic Finance Conference.

Dr Rimma, who is spearheading a major project on the perception of investors about the debt securities and the sukuks said that the research proved that sukuk structure was different from its conventional peers.

“There is no doubt that sukuks are fundamentally different from the debt securities and also sukuks are issued due to certain financial reasons and not due to sharia complaint product or religious reasons,” she explained.

Citing an example from the Malaysian market, which accounts for over 60 per cent of the global sukuk market, she found it as a perfect market to get a fair comparison of both types of bonds.

“Malaysia being the largest sukuk market is very different from the other markets as it offers equal opportunities to companies and investors both to go either way,” she said.

“Despite the fact that sukuks offer diversified benefits to the investors are undermined by the research data that sukuks are issued by only those companies who apparently lack the investment opportunities or a definite return on investment pattern,” she said, while quoting the findings from her study to be released in Denver next month.

“Malaysia is our sample market and we compared the sukuks and conventional bonds issued in eight years between 2002 and 2009. The study clearly shows that the issuer companies with strong capital, less risk and good prospects go for the conventional bonds. While the companies with more risks, higher debt-asset ratio and with no definite investment prospects go for sukuks,” she said.

Similarly, she added, during our studies we found that those markets show insignificant reaction to the issuance of debt securities behave negatively on the sukuk issuance. “This scenario further proves the case that the sukuks need fundamental restructuring,” she added.

On the other hands experts who addressed the conference believe that the sukuk market has grown large enough to support a transformation in the Islamic fund industry.

The sukuk market returned to growth in the first half of 2010. Global sukuk issuance topped $13.7 billion during this period, nearly twice the $7.1 billion recorded during the same period last year. The slight improvement in market conditions since the significant slowdown in 2008 has contributed to this performance.

The expansion of the sukuk funds industry will, according to experts, go hand in hand with the growth of the sukuk market, which continues to face obstacles.

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