Issuance Of Sukuk Al-Ijarah

Sukuk Al-Ijarah is one of the products in Malaysian capital market which is rapidly growing as an alternative to Islamic private debt securities structured under the concepts of Bai' Bithaman Ajil and Murabahah. Sukuk Al-Ijarah has also gained acceptance among Shari'ah scholars, particularly from Middle East countries. This article intends to provide a brief overview and structure commonly adopted in the issuance of Sukuk Al-Ijarah.

DEFINITION: SUKUK (plural of Sakk) A sakk (singular) is usually referred to as an "Islamic bond." Sukuk (plural) are actually more akin to "pass-through certificates," "equipment trust certificates," or "investment certificates," due to ownership attributes, with each sakk representing a proportional or undivided ownership interest in an asset or pool of assets.

Al-IJARAH (al-ajr) (sale of usufruct) Literal meaning: To compensate. Technical meaning: A contract of proposed and known usufruct (manfaat) with a specified and lawful return or compensation for the effort or work which has been expended. Under the securitisation process, Sukuk Al-ijarah refers to an Islamic bond for the buying and leasing of assets by the investors to the issuer and such Sukuk shall represent the undivided beneficial rights/ownership/interest in the asset held by the trustee on behalf of the investors.

1. Explanation of Diagram: Under the Ijarah structure, the Seller will sell its assets to the Issuer in consideration of a purchase price being paid based on the value of the respective assets.
To finance the purchase, the Issuer shall raise Sukuks of equivalent amount and in combination of both Senior Sukuk and Junior Sukuk. The Senior Sukuk shall be subscribed by the investors whilst the Junior Sukuk shall be solely subscribed by the Seller. The Sukuk shall represent the beneficial rights in the assets whereby the Sukuk holders shall have an undivided proportionate beneficial interest in the assets. The Issuer shall declare a trust via a trust declaration over the assets for the benefit of the Sukuk Investors. The Sukuk Investors will therefore have a pro-rata undivided beneficial ownership of the assets.

B. CONCLUSION
Sukuk Al-Ijarah is now accepted globally. In fact, the first global corporate Sukuk issuance is introduced by Malaysia through the issuance of Guthrie Sukuk.

This profile was written by Farhah Hayati Mamat, Senior Associate, Islamic Finance Azmi & Associates 14th Floor, Menara Keck Seng, 203 Jalan Bukit Bintang, 55100 Kuala Lumpur, Malaysia. Phone: +603- 2118 5000 Fax: +603- 2118 5111 E-mail: farhah@azmilaw.com