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This study aims to examine the determinants of Sukuk credit ratings of issuing firms in Malaysia, and the rating changes from lower to higher rating and vice versa.

A total of 328 Sukuk issuances and 1,110 Sukuk rating announcements from 2009 to 2014 were analysed using generalized ordered logit regressions approach. Firm financial characteristics, corporate governance attributes, macroeconomic factors and Sukuk structures (debt or equity based) were among the important determinants used to explain the different Sukuk credit ratings.

The results indicate a positive association of Sukuk credit rating with issuing firm’s financial information, governance attributes and the Sukuk structure whilst the macroeconomic factors did not explain the changes in the Sukuk credit rating. Specifically, firm size, profitability and leverage characteristics had significant positive effect on Sukuk credit rating for listed firms whilst only firm’s profitability had a positive effect on Sukuk credit rating by unlisted firms. With regard to governance, the board structure which includes board size, board independence and CEO/Chairman non-duality is associated with positive Sukuk credit rating for listed firms. Only financial report audited by big four auditors is associated with positive Sukuk credit rating for unlisted firms. Equity-based Sukuk are associated with positive Sukuk credit rating for listed firms while for unlisted firms only the Ijarah Sukuk had a positive Sukuk credit rating.

Data on credit rating is scarce and had to be hand-collected from published reports. Furthermore, issues on the lack of standardisation of Islamic contracts in different geographical areas could constrain on the comparability of findings on determinants of ratings in different jurisdictions.

The findings provide some guide to the rating agencies to objectively assess the issuer’s creditworthiness that could mitigate default risk. Mitigating the default risk will boost investors’ confidence and credibility of credit rating agencies.

This study examines the determinants of Sukuk credit rating of issuing firms in Malaysia, which include not only the listed firms but also the unlisted firms.

This study aims to analyze the determinants of ratings of corporate bonds and sukuk issued by firms listed on the Indonesia Stock Exchange (IDX) for the 2013–2019 period.

This study uses a quantitative approach by testing hypotheses and using logistic regression. Ordinal logistic endogenous (or dependent) variables (Y) in ordinal logistics use data in the form of levels (ordinal scale). Independent (or exogenous) variables (X), include financial and non-financial factors for dependent (or endogenous) variables (Y), namely, of corporate bonds and sukuk ratings. There are two approaches to the study they are Logit and Gompit (Negative Log-Log. The population of the study is Indonesian companies listed on the IDX that issued bonds and sukuk for the 2013–2019 periods. The sampling technique is purposive. In total, 16 corporate companies adhering to the above criteria and issuing bonds and sukuk were chosen. In total, 270 types of bonds and 280 types of sukuk were selected as samples.

The results of the Logit and Gompit regression show that leverage ratio, firm size, security structure and maturity date are important determinants of corporate bond ratings while profitability and liquidity ratios appear to have no influence on the rating. In the case of sukuk, profitability, liquidity and maturity date play important roles in influencing the corporate sukuk rating. However, there is no evidence to suggest that leverage ratio, company size and security structure may affect sukuk ratings.

For both sukuk and bond issuers, it is necessary to pay attention to the factors that may affect the ratings. Specifically, Sukuk issuers need to pay attention to the return of asset, current ratio, growth and structure. On the other hand, bond issuers need to consider depth to equity, structure and maturity. As for investors, the findings of this study reveal that both bond and sukuk ratings reflect their performance.

This study provides useful information for investors that allows them to assess the risk of sukuk or bonds chosen based on rating and financial performance.

The novelty of this study lies in its econometric methodology used to identify factors which influence sukuk and bond ratings. Specifically, this study used two different techniques that allow a robust conclusion to be drawn. Furthermore, this study provides a systematic analysis which allows comparison between factors which affect bond and sukuk ratings in Indonesia.

The purpose of this paper is to investigate the effect of board attributes on Sukuk rating in firms listed in Bursa Malaysia (Malaysian Stock Exchange) during the period of 2008 to 2013.

This study uses ordinal logit regression model to examine the influence of board attributes (CEO-chairman duality, board size and board independence) on the dependent variable (RATING).

The findings of this paper generally support the agency theory and stakeholder theory. Results show that after controlling for firm characteristics, the Sukuk rating is positively associated with CEO-chairman duality, board size and board independence; and negatively correlated with leverage while positively related to profitability and size. The findings of this study also provide evidence that having two positions in an organization as CEO and chairman could have added higher responsibility towards making corporate decisions and provide better Sukuk rating performance. In addition, findings show that the larger the board size, the better Sukuk rating. Also, higher board independence enjoys higher rating.

This study was limited to the investigation of the relationship between board attributes (CEO duality, board size and board independence) on Sukuk ratings using aggregate data from 2008 to 2013 among Malaysian Sukuk issuers.

The findings of this paper describe the impact of board attributes on Sukuk rating in Malaysian Sukuk market which in turn gives the useful insights to many of the actors in the markets such as issuers, investors and policymakers which can be relied upon in making strategic decisions to issue and invest in Islamic bonds in Malaysian market. In addition, the findings could prove to be useful also for regulators because they are responsible for the acceptable level of corporate governance standards.

This study contributes to the body of knowledge by focusing heavily on enhancing Sukuk ratings by reducing conflict between managers and Sukuk holders in Malaysia. Additionally, this study benefits from the agency theory and stakeholder theory to provide evidence on the effect of board attributes on Sukuk rating.

This study aims to identify the determinants of Malaysian corporate Sukuk rating and attempts to find out which determinant has the most significant impact.

The framework tries to establish a relationship between firm’s size, profitability, Sukuk guarantee status and types of Sukuk with Sukuk rating from the perspective of Agency Theory and Information Asymmetry Theory. The data consist of 43 Sukuk issuances from 2006 to 2015. Multinomial Logistic Regression Model is then used to find out the significant determinants of Sukuk rating.

The study found that only three variables significantly impact Sukuk rating. The results show that a guaranteed Sukuk Ijarah or a guaranteed Sukuk Musyarakah that is issued by a highly profitable firm has a higher likelihood of getting rating AAA or rating AA as compared to getting rating A. A type of Sukuk, particularly Sukuk Murabahah, is the most significant variable influencing Sukuk rating. However, firm size is not a significant determinant of Sukuk rating in the context of this study.

The first limitation of the study is the relatively small sample size. Second, the study only tested four independent variables.

Several implications are derived from the results of the study. First, new firms that are planning to issue Sukuk should consistently maintain a high level of profit and consider issuing debt-based Sukuk to ensure that the issued Sukuk have higher rating. To increase the likelihood of getting higher rating, they should also consider providing a third-party guarantor. As for existing Sukuk issuers that are in lower rating category, they should increase their profitability to be upgraded to higher rating category. Second, risk-adverse investors should invest in highly profitable, guaranteed and debt-based Sukuk, as these Sukuk are likely to be in higher rating category and provide guarantee in terms of capital payments during liquidation or bankruptcy. Third, to reduce information asymmetry, policymakers should make it compulsory for all Sukuk issuers to have their Sukuk rated annually and make it mandatory for all rating agencies in Malaysia to publish their Sukuk rating methodologies.

This paper helps to expand the limited existing literature about the determinants of Sukuk rating, particularly for the Malaysian corporate Sukuk.

Islamic Finance and Investment

Level of program/audience: Advanced undergraduate and postgraduate.

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

Capital markets instruments, conventional or Islamic.

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.

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.

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

We empirically investigate the determinants of sukuk issuance type in Indonesia to issue either ijarah sukuk or mudharabah sukuk. We include sukuk characteristics, sharia-related factors, and firm characteristics, provide empirical evidence on the determinants of sukuk issuance type by incorporating sukuk-specific factors, firm-specific factors, and sharia compliance variables, and address the role of Sharia Supervisory Board, as the sharia representative of firm compliance for sharia products, in the issuer’s choice of sukuk type. By studying 88 sukuk issuance in Indonesia from 2009 to 2017, we find that firm profitability and the sharia compliance level have a significant effect on the probability of issuing mudharabah sukuk. Some other factors’ characteristics including sukuk yield, firm age, and inflation rate are also found to have a significant effect.

This paper identified the ṣukūk structure suitable for deficit financing during the COVID-19 crisis. The study also explored the relevant Sharīʿah contracts that could be utilized to issue ṣukūk that is suitable for various jurisdictions and corporations in handling deficit financing during the COVID-19 crisis.

The authors have adopted a qualitative research approach in which primary and secondary sources available on the subject were reviewed, especially a number of cases related to ṣukūk structures prior to and during the COVID-19 crisis and analyzed their performances and drawn their conclusions.

The outcome of this paper suggests that certain ṣukūk structures used during the COVID-19 crisis aimed primarily at financing deficit have been successful. Furthermore, these ṣukūk structures are relied very much on the obligator’s/issuer’s cash flow position. It has been revealed that if the ṣukūk is structured on equity-based contracts with lower repayment amount or no payment, it would not trigger default because the nature of this ṣukūk is the sharing of profit and loss, in accordance with a Sharīʿah rule that there will be compensation for any loss only if deliberate and notable negligence is proven. However, if it is debt based or ijarah and wakalah contracts, then the payment to ṣukūk holders ought to be made as agreed and if not, it will trigger default. This payment is to be made from the cash flow of the issuer and if there is an issue in the cash flow of the issuer due to COVID-19, consent from the ṣukūk holders needs to be obtained to reschedule payment as found in the case of the Garuda Indonesia ṣukūk. However, as found in MASB’s IMTN ṣukūk case, if the cash flow of the company is good, then the chances of default are very slim. However, so far, three new ṣukūk in the middle of COVID-19 were issued, one by a corporation and two issued by a sovereign, one of which addresses the liquidity issues during the pandemic, and all these proved that ṣukūk is definitely a viable alternative mode for deficit financing and a reliable option during the COVID-19 pandemic.

This paper looked into the ṣukūk structure, especially the ṣukūk which are yet to mature and the new ṣukūk issued during the crisis caused by the COVID-19 pandemic.

It is anticipated that the outcome of this research will assist the stakeholders in ṣukūk markets to understand the ṣukūk impact on COVID-19 related deficit financing and suggest various structures that could be utilized in the ṣukūk market in an unprecedented situation such as the COVID-19 economic distress.

Looking at the social aspect of ṣukūk markets, this paper has endeavored to provide solutions to the financing of deficit for social well-being as a tool to provide relief and social stability in the lives of the people.

The novel COVID-19 pandemic has caused unprecedented economic difficulties and market distress on a global scale; and this research sought to identify the relevant ṣukūk structures to be used for deficit financing during the pandemic crisis, especially the ṣukūk which are yet to mature and new ṣukūk issued during the pandemic crisis. The former includes HDFC Muḍārabah ṣukūk (2019) Maldives and MAHB ṣukūk/IMTN program (2010) Malaysia, while the latter includes IsDB Trust Certificates, Phase 2 of the tranches (2020), the Federal Government of Nigeria Road ṣukūk (May, 2020) and Sharj’ah Government two billion Dirham ṣukūk (June, 2020).

This study aims to identify the factors that influence the willingness of Bangladeshi retail investors to invest in ṣukūk.

The authors surveyed Bangladeshi retail investors using a structured questionnaire to understand their perspectives on potential investment in ṣukūk. The authors considered the behavioral aspects of retail investors and the desired ṣukūk features to analyze the demand side. Factors and regression analyses were performed to identify the persuading factors.

The results indicate that investor awareness is a fundamental factor in potential investments in ṣukūk. Investors perceive the security represented by government and third-party guarantees as a persuasive feature of ṣukūk. The tradability and tenor of ṣukūk also affect the investment intention. Sharīʿah consciousness of the investors also plays a significant role in their investment decisions.

One limitation of this study is that it incorporates potential individual investors only, and precludes institutional investors. In the future, there is scope for research to explore the demand factors impacting institutional investors of ṣukūk in Bangladesh.

The authors expect that the study will aid policymakers and ṣukūk issuers in crafting strategies to cater to the needs of Bangladeshi retail investors.

This study is the earliest research conducted in Bangladesh to determine the factors impacting the willingness of individual investors to make their potential investments in ṣukūk. To the best of the authors' knowledge, no study has analyzed the desired ṣukūk features from the perspective of Bangladeshi retail investors.

The purpose of this paper is to investigate the default characteristics of Sukuk issues by corporate firms in Malaysia using value-at-risk (VaR) techniques over a period of 16 years from 2000 to 2015 and across nine economic sectors.

The paper employs non-parametric and Monte Carlo simulations to estimate Sukuk defaults.

The authors analyses revealed that the VaR predictions were fairly consistent with the ratings provided by credit rating agencies, despite the limited tradability of Sukuk in the secondary market. The study was able to demonstrate that Sukuk is not riskier than conventional bonds in the Malaysian context.

The research findings suggested that VaR values will depend on the fundamental value of a firm based on the considerations of market, credit and operational risk. It does not rely on the type of debt instrument, whether a Sukuk or conventional bonds.

The use of Sukuk along with conventional bonds as debt instruments creates opportunities for investors and bond issuers globally.

Although Sukuk has generated much interest among financial market players, studies are lacking on how to predict Sukuk defaults and whether Sukuk has the same risk profile compared to conventional bonds.

This study examines co-movements between global Islamic index and heterogeneous rated/maturity sukuk. It tests the impact of financial uncertainty on these movements.

Firstly, we conduct a bivariate wavelet analysis to assess the co-movements between stocks and sukuk indexes. Secondly, we use General dynamic factor model and stochastic volatility to construct financial uncertainty index from Islamic stock indexes. Finally, we run regression analysis to determine the impact of uncertainty on the obtained correlations.

Our results suggest the absence of flight to quality phenomenon since correlations are positive especially at a short investment horizon. There is evidence of contagion phenomena across assets. Financial uncertainty may be considered as a determinant of stock-sukuk co-movements. Our results show that a rise in financial uncertainty induces correlation to move in the opposite direction in the short term, (exception for correlation with AA-Rated sukuk). However, the sign of stock market uncertainty becomes positive in the long term, which leads sukuk and stocks to move in the same direction (exception for 1–3 Year and AA Rated sukuk).

Investors may combine sukuk with 1–3 Year maturity and AA Rated when considering long holding periods. Further, all sukuk categories provide diversification benefit in time high financial uncertainty expectation for AA Rated sukuk when considering short holding periods.

To the best of our best knowledge, our study is the first investigation of the impact of financial uncertainty on Stock-sukuk co-movements and provides recommendation considering sukuk with different characteristics.