murābahah sukūk ali saeedi member of the board securities & exchange organization presented...
TRANSCRIPT
Murābahah Sukūk
Ali SaeediMember of the board
Securities & Exchange Organization
Presented by:
1. Islamic Instruments and Contracts,
2. Murābahah Contract,
3. Murābahah Sukūk,
4. Different Types of Murābahah Sukūk,
5. Comparison of Murābahah & Ijārah Sukūk,
6. Shari'ah Considerations,
7. Regulations Considerations,
Contents
Islamic Instruments
and Contracts
Capital market: A market in which debt or equity securities are traded.
Capital Market: A place for Contracts.
Financial Instruments: Designed on the basis of different contracts,
e.g. Murābahah Sukūk based on Murābahah contract, …
Behind Financial Instruments
Sale of goods with an agreed upon profit mark up on the cost. Murābahah
sale is in two types:
1- In the first type, the Islamic bank purchases the goods and makes it
available for sale without any prior promise by a customer to purchase it.
2- In the second type, the Islamic bank purchases the goods ordered by a
customer from a third party and then sells these goods to the same
customer. In the latter case, the Islamic bank purchases the goods only
after a customer has made a promise to purchase them from the bank.
Source: The Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI)
Murābahah Contract Definition
Murābahah Sukūk
• Murābahah Sukūk is securities in which the holders of
which are the common owners of a financial asset (a
debt) based on the Murābahah Contract.
• These securities have a fixed yield and available for sale
in the secondary markets.
• Originator (or any other part) should be able to pay the
installments via its own activities
• Rate of profit and maturity date should be clarified in the
contract.
Murābahah Sukūk
Sukūk
Originator
Rating Agency
Investment bank
SPV
The Elements of Murābahah Sukūk
SPV is a legal entity which is authorized to raise funds by issuing securities through the conduct of transactions under the category of Islamic contracts. Base on Iranian regulations, SPV is a financial institution.
SPV and originator should be independent and should not be affiliated by originator:
1- In order to prevent the conflict of interests, (SPV should be the agent of Sukūk holders and act on behalf of them),
2- In case of bankruptcy, all assets of the originator including, SPV would be at risk (if SPV would be affiliated by originator),
3- To execute transactions correctly (true sale) from the Shari'ah point of view.
Special Purpose Vehicle (SPV, SPE, SPC)
Capital Asset Management Co.
SPV1 SPV2 SPVn
Tehran Stock Exchange
CDSAn Affiliated Co. of SEO
Farabourse
..……………………
SPVs structure in Iran
SPVs Should be Independent
from Originators
Different Types of
Murābahah Sukūk
1. Murābahah Sukūk for Buyers
Financing,
2. Murābahah Sukūk for Sellers
Financing,
3. Mortgage Murābahah Sukūk,
4. Liquidity Murābahah Sukūk.
Various Types of Murābahah Sukūk
2 Common types of Murābahah Sukūk
Adopted by all Islamic schools of
thought
• SPV (as issuer) issues the Murābahah Sukūk,
collects the funds of the investors by investment
banks services (the “Principal Amount”), and on
behalf of investors buys the commodity needed by
the originator from a commodity supplier in cash
and sells it to the originator in form of a Murābahah
contract over an agreed period of time and agreed
rate of profit.
• Originator undertakes to pay to the SPV the price
of the commodity (Principal + Profit) on due dates.
Murābahah Sukūk for Buyers Financing
Murābahah Sukūk for Buyers Financing
Regulator, Investment Banks, Rating Agencies, Auditors
6. Sukūk Proceeds (Deferred Price)1 .Issuing
Sukūk
2 .Sukūk Subscription
3 .Spot Payment
4. Spot Delivery
5. Selling Asset with Credit Payment (Spot Delivery)
SPV InvestorsCommodity Supplier
Originator
(Buyer)
• SPV (as issuer) issues the Murābahah Sukūk,
collects the funds of the investors by investment
banks services (the “Principal Amount”), and on
behalf of investors buys the commodity of the
originator and sell it to buyer in form of a
Murābahah contract over an agreed period of time
and agreed rate of profit.
• Buyer undertakes to pay to the SPV the price of the
commodity (Principal + Profit) on due dates.
Murābahah Sukūk for Sellers Financing
Murābahah Sukūk for Sellers Financing
1 .Issuing Sukūk
2 .Sukūk Subscription
3 .Spot Payment
4. Spot Delivery
SPV InvestorsOriginator
(Seller)
Buyer
(Leasing Co.)
5. Selling Asset with Credit Payment (Spot Delivery) 6. Sukūk
Proceeds (Deferred Price)
2 other types of Murābahah Sukūk
Are not adopted by all Islamic schools
of thought
• SPV issues the Sukūk, collects the funds of the investors
then acts on their behalf and buys from the bank
(originator) mortgage facilities arising from the Murābahah
Contracts.
• The originator undertakes to collect on the due dates the
mortgage facilities assigned by the debtors and deliver
them to the SPV. The SPV will give to the holders of the
Sukūk the funds received from the Bank through the
customer.
• The investors may wait until maturity dates and enjoy the
interest arising on the Murābahah or otherwise sell the
Securities in the secondary markets before the due dates.
Mortgage Murābahah Sukūk
1 .Issuing Sukūk
2 .Sukūk Subscription
3. Spot Payment for Bank’s Receivables/Debt
4 .Selling Debts
SPVInvestors
Bank
Financial Facilities Receivers
(Murābahah Based) 6. Paying Installments
Mortgage Murābahah Sukūk (Cont…)
If Bai al Dayn is accepted
• SPV collects the funds of the investors, then acts on their
behalf and buys in cash one of the Originators’ physical assets
then sells the same asset at a higher price to the originator
itself on credit terms.
• The originator undertakes to give the credit price of the assets
to the SPV on due dates.
• The purchase and sale on credit terms (Bay al-inah) is
prohibited by most of Shiite and Sunni scholars.
Liquidity Murābahah Sukūk
1. Issuing Sukūk
2. Sukūk Subscription
3. Spot Payment
4. Spot Delivery
SPV InvestorsOriginator
5 .Selling Asset as Credit Payment
6. Paying Profit
Liquidity Murābahah Sukūk (Cont…)
SPV InvestorsOriginator
7. Sukūk Proceeds (Deferred Price)
Comparison of
Murābahah & Ijārah
Sukūk
• Ijārah Sukūk is most widely used among other
Islamic financial instruments; however, after
global downturn in Sukūk issuance in 2008,
issuance based on Murābahah Sukūk increased
by nearly 60.4%.
• Since, Murābahah Sukūk can be used for
working capital financing, and also it is fixed
income Sukūk, so it has some advantages in
comparison with the other types of Sukūk such
as Ijārah and Mudārabah.
Murābahah Sukūk & Ijārah Sukūk
• Asset Backed & Asset BasedMurābahah Sukūk is asset based, but Ijārah Sukūk is asset backed. In asset-backed Sukūk, investors are legal owners of the asset but in asset-based, investors has beneficial owners or owners of cash flow generated by asset.
• Debt or Equity InstrumentMurābahah Sukūk can be considered as a debt instrument, but Ijārah Sukūk is none of them and both of them. Investors in Ijārah Sukūk are owners of the asset and also based on the nature of Ijārah contract which is binding, it is similar to debt instrument. But in fact, Ijārah Sukūk can not be classified in none of the two groups.
Comparison
• Risk ProfileMurābahah Sukūk is a debt instruments and risk of Sukūk does not focus on asset risk, but rather on credit risk of the originator & Ijārah Sukūk
• Underlying AssetIn Murābahah Sukūk, the underlying asset can be a consuming asset such as materials and spare parts, or long term asset such as real estate and machineries. In Ijārah Sukūk, the underlying asset should have long term life cycle to be qualified for leasing.
Comparison (Cont…)
• MarketabilityBased on different jurisdictions, Murābahah Sukūk can have secondary market or not. Based on Shi'a and Shafei schools of thought, debt sale is accepted, so secondary market is available but scholars of other jurisdictions do not accept it.If debt sale is accepted, marketability will exist, unless it will not be a liquid security.
Comparison (Cont…)
Shari'ah
Considerations
• From a Shari'ah angle, agency agreements
(Wukālah) [between SPV and investors], cash
transaction and credit transaction of a tangible
asset [between SPV and originator] is accepted by
all schools.
• But, there is a divergence of views on contracts
for purchase of debt (Bai al Dayn) [between
investors].
• According to opinions of renowned Shi'a and
Shafei scholars it is permissible and according to
opinions of Sunnite scholars it is rejected.
Shari'ah Considerations
• If debt is discounted in a deferred payment [Bai al Dayn bi addayn], it will be rejected by all schools.
• If debt is discounted spot by third party, it will be very controversial:
– Hanafiyah, Hanabelah, some of Shafe’iyah and some of Shi'a scholars do not validate it,
– Most Shi’it scholars, some other of Shafe’iyah, Ibn Taymiyah and Ibn Qayyem have validate it,
– The rest of Shafe’iyah validate it provided that:
a. Debtor is wealthy and confess to have such a debt or his debt is proved by evidence.b. Debt is confirmed (Mustaqar)c. The substitute is delivered at the session of contract.
Shari'ah Considerations (Cont…)
• Why is it accepted by some schools?• If investor A can discount debt, investor B can take his place in secondary market, and if it is not permissible, both primary and secondary transactions are not permissible.
• Why isn’t it accepted by other schools?• They believe that discounting has the same
nature of Riba, any increase and decrease of debt [Qardh] is not permissible. Murābahah is an exception.
Shari'ah Considerations (Cont…)
Regulations
Considerations
1. Based on IFSB definition, “Sukūk are certificates with each sakk representing a proportional undivided ownership right in tangible and intangible assets, monetary assets, usufructs, services, debt or a pool of predominantly tangible assets, or business venture”,
2. In asset-based instrument, originator typically transfers only the beneficial ownership of asset, so investors have no recourse to the assets.
3. Based on IFSB standards, asset-based Sukūk should have credit rate,
4. Credit enhancement is needed (such as third party guarantee, over- collateralization, excess spread, cash collateral),
Regulations Considerations
4. Tax regulation is very crucial, each transaction has its tax expenses and if transaction would be taxable, cost of financing will increase and instrument can not be used in practice.
5. Underling asset must be clearly identifiable (may be in a specific project or investment activity) and Shari'ah complied.
6. The asset should be available when issuing the certificates or the conditions for its delivery should prevail at the periods of time fixed by the originator (unless it becomes Bay al-kali).
7. Types of acceptable assets: land; buildings and installations; machinery and equipment; means of transport; materials and goods.
.
Regulations Considerations (Cont…)
8. In the event that asset is in the form of materials, Murābahah Sukūk is short term instrument, but if asset is in the form of long term asset, Murābahah Sukūk is long term instrument.
9. Providing other documents and deeds relating to the asset should be mentioned in regulations (such as: commodity standard certificate, proforma invoice, warehouse receipt, …)
Regulations Considerations (Cont…)
8. In the event that asset is in the form of materials, distribution of specific series of Murābahah Sukūk in a step by step method should be allowed in regulation, but intervals should be determined in prospectus and should not be too long. Anyway, total contract price should be mentioned and registered.
9. Iranian capital market rules and regulations are available in the following website (English Version):http://rdis.ir/Rules.asp
Regulations Considerations (Cont…)
Thanks For Your Attention