Sukuk

A sukuk is a security that represents a direct ownership stake in an asset (real estate, equipment, or a project) or in the returns it generates. The sukuk holder owns a portion of the asset itself, not a fixed payment from the issuer.

Sukuk structures vary by asset type and legal arrangement. An ijara sukuk represents ownership of a property that is leased, so the holder receives a shareTermStock×السهمA share of ownership in a company, bought and sold on a stock exchange, that may pay dividends and rise or fall in value.Open the term of the rental income. A murabaha sukuk represents ownership of goods the issuer has sold at a profit margin. An investment sukuk represents a stake in a project or asset portfolio.

The difference between a sukuk and a bondTermBond×السنداتA loan issued by a government or company that you buy, receiving regular interest payments and your principal back at maturity.Open the term is not merely semantic, it changes what you own and what you can claim if the issuer fails.

A bondholder is a creditor: they have a right to fixed payments regardless of how the underlying asset performs. If the issuer becomes insolvent, they stand in line with other creditors. A sukuk holder is an owner: they hold a share in the asset itself. If the project fails, the value of their stake declines, but they cannot lose more than their original investment, there is no remaining debt claim against them.

That is the theory, and it is worth checking against the actual document, because most sukuk issued are asset-based rather than asset-backed. In an asset-based structure the asset makes the arrangement work on paper, but it is never truly transferred to the holders, and the issuer undertakes to buy it back at face value at the end of the term. If that issuer fails, the ownership you were sold turns back into a claim against the issuer, standing in the same queue as everybody else. A genuinely asset-backed sukuk does transfer the asset, and it is the rarer of the two.

The prospectus tells you which one you are buying, in the section describing what happens at dissolution. If the issuer promises to repurchase at face value regardless of what the asset is worth by then, you are holding that issuer's credit rather than a share of a building, whatever the name on the cover says.

• A sukuk is not a guarantee: its value moves with the underlying asset, not fixed like a bond.
• The real asset means the sukuk is tied to something tangible (property, equipment, a project) not merely a promise.
• LiquidityTermLiquidity×السيولةHow quickly and easily an asset can be converted to cash without losing value or paying a large fee.Open the term varies enormously between issues: a large sovereign issue trades most days, while a small corporate one may have no buyer at all on the day you want out. Ask what the bid-offer spread has been before you buy, not after.
• Islamic and conventional sukuk differ in legal structure, but the core principle is the same: you own a share of an asset, not a fixed payment stream.