Road to default: Tracoma holding Berhad Bai Bithaman Ajil Debt securities (BaIDS)

Abstract

Subject area

Islamic Finance and Investment

Study level/applicability

Level of program/audience: Advanced undergraduate and postgraduate.

Courses

Intermediate and Advanced Finance, Economics, Islamic Economics & Finance, Islamic Banking & Finance, Islamic Capital Market and other relevant courses.

Specifictopics/syllabus

Capital markets instruments, conventional or Islamic.

Case overview

This case focuses on Tracoma Holding Berhad Bai Bithaman Ajil Debt Securities (BaIDS) amounting to RM 100 million which was issued by Tracoma Holding Berhad in 2005. It was the first issuance of a sukuk (Islamic debt securities or bond) by the company. The proceeds were used to finance its growth and to repay existing bank borrowings and capital requirements. This case is interesting, as it allows students to study the bai bithaman ajil sukuk structure and issuance process in the Malaysian capital market. It also provides basic financial transaction and credit rating of sukuk which requires analytical skills. Being a debt-based facility, the sukuk was subjected to credit rating evaluation by the MARC, the rating agency appointed by the company. Further downgrading of the sukuk meant it would lead to the worst-case scenario. Some actions needed to be taken to solve this issue; therefore, the CFO suggested an urgent meeting with the sukuk holders.

Expected learning outcomes

The students should be able to: understand the issuance process and the principle of BBA (bai bithamin ajil) in sukuk structure; understand reason(s) methods of fund raising by firm and the allocations of fund; understand the sukuk default issue; analyze the reasons for sukuk default; understand the importance of debt securities credit ratings; and identify investors' protection in the case of sukuk default.

Supplementary materials

Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Citation

Hafizi, A.M., Shahimi, S., Abdullah, M.H.S.B. and Daud, M.B.H. (2015), "Road to default: Tracoma holding Berhad Bai Bithaman Ajil Debt securities (BaIDS)", , Vol. 5 No. 5. https://doi.org/10.1108/EEMCS-09-2014-0231