The structure and elements of a Sukuk transaction
Produced in partnership with Dentons LLP
The structure and elements of a Sukuk transaction

The following Banking & Finance practice note Produced in partnership with Dentons LLP provides comprehensive and up to date legal information covering:

  • The structure and elements of a Sukuk transaction
  • Bonds versus Sukuk
  • Sukuk al Ijara
  • Sukuk al Mudaraba/Sukuk al Wakala
  • Sukuk al Murabaha
  • Hybrid of key structures
  • Recent trends

This Practice Note sets out the key differences between conventional bonds and sukuk, or trust certificates as they are otherwise known, (the Sukuk). The Practice Note also provides an overview of the main Sukuk structures and comments on recent trends seen in the Sukuk market.

Bonds versus Sukuk

Structural features

In order to generate returns for investors, all Sukuk structures rely upon either the performance of an underlying asset or a contractual arrangement with respect to that asset. Consequently, the Sukuk represents an investor’s undivided beneficial interest in the underlying Sukuk asset(s) and a right against the issuer of the Sukuk to payment of profit (or periodic distribution) amounts and repayment of principal.

Therefore, the main difference between Sukuk and conventional bonds stems from the fact that Sukuk holders (as in all Shari’ah-compliant legal structures) take indirect ownership of an underlying asset or pool of assets, compared with the holders of a conventional bond who purely hold financial debt of the relevant issuer. Under Shari’ah rules, Sukuk do not pay interest but generate a return through economic transactions in the form of the sharing or leasing of the underlying assets. However, as will be seen below, the commercial reality is that, in essence, when acquiring a Sukuk investors make the same assessments as they do when acquiring a bond—their investment decision hinges on their assessment of the risk

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