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KembaraXtra – Islamic Finance: Rating, Listing and Clearing of Ṣukūk
Overview
As asset-based securities, Ṣukūk can be:
These features enhance investor confidence, transparency, liquidity, and market efficiency.
1. Credit Rating of Ṣukūk
Why Ṣukūk Are Rated
Although Ṣukūk are Sharīʿah-compliant, they are not risk-free. Like bonds, Ṣukūk are exposed to default risk, which includes:
In a default scenario:
Because of these risks, investors and regulators rely on credit ratings to assess the likelihood that the issuer will meet its obligations.
What Is a Credit Rating?
A credit rating is an independent assessment of an issuer’s:
How Ratings Are Determined
Major Credit Rating Agencies
The three largest global credit rating agencies involved in Ṣukūk ratings are:
-Moody’s
-Standard & Poor’s
-Fitch Ratings
In Malaysia, Ṣukūk are also rated by:
2. Listing of Ṣukūk on Exchanges
Purpose of Listing
Ṣukūk may be listed on stock exchanges, which provides:
Benefits to Investors
When Ṣukūk are listed:
Listing on reputable exchanges therefore gives additional comfort and assurance to market participants.
Global Ṣukūk Listings (Illustrative Examples)
According to market data reported by Reuters (2015):
3. Clearing and Settlement of Ṣukūk
Why Clearing Systems Matter
After trading, Ṣukūk transactions must be:
Centralised clearing systems ensure:
Importance for Market Development
Efficient clearing and settlement:
Modern initiatives include:
Simple Exam-Friendly Summary
Key Takeaway
Rating, listing, and clearing mechanisms ensure that Ṣukūk function as credible, transparent, and tradable instruments within modern financial markets, while still maintaining their Sharīʿah-compliant, asset-based nature.
Overview
As asset-based securities, Ṣukūk can be:
- Rated by credit rating agencies,
- Listed on recognised exchanges, and
- Cleared and settled through centralised clearing systems,
These features enhance investor confidence, transparency, liquidity, and market efficiency.
1. Credit Rating of Ṣukūk
Why Ṣukūk Are Rated
Although Ṣukūk are Sharīʿah-compliant, they are not risk-free. Like bonds, Ṣukūk are exposed to default risk, which includes:
- Payment delay risk – issuer faces cash flow problems,
- Insolvency risk – issuer becomes bankrupt and cannot meet obligations.
In a default scenario:
- Regular profit/rental payments may not be made, and/or
- Principal repayment at maturity may be affected,
- Underlying assets to which Ṣukūk holders may have recourse could become irrecoverable.
Because of these risks, investors and regulators rely on credit ratings to assess the likelihood that the issuer will meet its obligations.
What Is a Credit Rating?
A credit rating is an independent assessment of an issuer’s:
- Willingness, and
- Ability
- Ratings of BBB– and above (or equivalent) are considered investment grade.
- Higher ratings indicate lower credit risk.
How Ratings Are Determined
- Sovereign Ṣukūk:
- Typically influenced by the country’s sovereign rating.
- Corporate Ṣukūk:
- Depend on the issuer’s financial strength, cash flows, and business risks.
- Ṣukūk backed by government or government-linked assets generally receive higher ratings.
Major Credit Rating Agencies
The three largest global credit rating agencies involved in Ṣukūk ratings are:
-Moody’s
-Standard & Poor’s
-Fitch Ratings
In Malaysia, Ṣukūk are also rated by:
- RAM Rating Services Berhad
- Malaysian Rating Corporation Berhad
2. Listing of Ṣukūk on Exchanges
Purpose of Listing
Ṣukūk may be listed on stock exchanges, which provides:
- Enhanced disclosure and transparency,
- Greater visibility to global investors,
- Improved secondary market liquidity.
Benefits to Investors
When Ṣukūk are listed:
- Issuers must comply with continuous disclosure requirements,
- Investors receive timely information on:
- Financial performance,
- Corporate announcements,
- Changes in board or management.
Listing on reputable exchanges therefore gives additional comfort and assurance to market participants.
Global Ṣukūk Listings (Illustrative Examples)
According to market data reported by Reuters (2015):
- Ṣukūk listed on Dubai exchanges (Nasdaq Dubai and Dubai Financial Market) reached USD 36.7 billion,
- Malaysia (Bursa Malaysia and Labuan) recorded USD 26.6 billion,
- Ireland and London exchanges also host significant Ṣukūk listings,
- Exchanges such as the Luxembourg Stock Exchange actively promote Ṣukūk listings by offering:
- Tax efficiency,
- High transparency,
- Strong international visibility.
3. Clearing and Settlement of Ṣukūk
Why Clearing Systems Matter
After trading, Ṣukūk transactions must be:
- Cleared (confirmation of obligations), and
- Settled (transfer of securities and cash).
Centralised clearing systems ensure:
- Speed,
- Accuracy,
- Reduced settlement risk.
Importance for Market Development
Efficient clearing and settlement:
- Support active trading,
- Reduce operational risk,
- Enhance investor confidence,
- Are essential for large-scale and cross-border Ṣukūk markets.
Modern initiatives include:
- Electronic clearing systems,
- Multi-currency settlement platforms,
Simple Exam-Friendly Summary
- Ṣukūk can be rated, listed, and cleared like other securities.
- Credit ratings assess the issuer’s ability to meet payment obligations.
- Listing enhances transparency, disclosure, and liquidity.
- Centralised clearing systems enable efficient settlement.
- These features strengthen the credibility and integration of Ṣukūk within global capital markets.
Key Takeaway
Rating, listing, and clearing mechanisms ensure that Ṣukūk function as credible, transparent, and tradable instruments within modern financial markets, while still maintaining their Sharīʿah-compliant, asset-based nature.
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