​KembaraXtra – Islamic Finance – Sukuk: Rescheduling and Restructuring of Ṣukūk
​Why Rescheduling and Restructuring Are Needed
Like other capital market instruments, Ṣukūk are exposed to default risk. Default may arise when an issuer (originator/obligor):

• Faces cash flow problems, or
• Experiences financial distress that affects its ability to make periodic distributions or repay principal on time.

To avoid liquidation and allow the issuer to restore liquidity and continue operations, two main remedial approaches are used:

1. Rescheduling, and
2. Restructuring.

Both must comply with Sharīʿah principles, which impose important limitations not found in conventional finance.

1. Rescheduling of ṢukūkWhat Is Rescheduling?
Rescheduling refers to modifying the existing Ṣukūk terms—usually through a supplemental agreement—without creating a new facility.
The goal is to ease short-term payment pressure on the issuer.

How Rescheduling WorksRescheduling typically involves:

• Extending the tenure of the Ṣukūk, and
• Reducing the instalment or periodic payment amount, which:
  • Increases the number of payment periods,
  • Improves the issuer’s cash flow position.

Sharīʿah Rule in Sale-Based ṢukūkFor Ṣukūk structured on sale-based contracts (e.g. murābaḥah, BBA):

• The rescheduled amount must not exceed the original sale price.
• No additional charges may be imposed beyond what was originally agreed.

This is critical because:

• Increasing the sale price due to time extension would resemble riba (interest),
• Sharīʿah prohibits charging extra purely because of delayed payment.

Simple Example (Rescheduling)

• Original Ṣukūk sale price: RM 100 million
• Issuer faces cash flow issues
• Parties agree to:
  • Extend maturity by 3 years,
  • Lower periodic instalments,
• Total amount payable remains RM 100 million, not more.

👉 This is permissible rescheduling under Sharīʿah.

Key Purpose of Rescheduling

• Temporary relief for the issuer,
• Preservation of the original Sharīʿah contract,
• Avoidance of default escalation.

2. Restructuring of ṢukūkWhat Is Restructuring?Restructuring is a more comprehensive solution than rescheduling. It usually occurs when:

• Rescheduling is insufficient, or
• The issuer’s financial condition has deteriorated significantly.

Restructuring may also take place for strategic reasons, such as:

• Mergers,
• Acquisitions,
• Corporate reorganisation.

How Restructuring WorksIn principle, restructuring involves:

• Redemption or termination of the existing Ṣukūk, and
• Entering into new Ṣukūk agreements.

A new restructured amount is created, which may include:

• Outstanding principal,
• Accrued but unpaid profit,
• Contractually permissible penalties or charges (subject to Sharīʿah rules).

As a result:

• The restructured amount may exceed the original sale price.

Sharīʿah Perspective on Restructuring

• The increase in the restructured amount is not treated as riba, because:
  • The old contract is terminated,
  • A new Sharīʿah-compliant contract is entered into,
  • The restructuring reflects a fresh commercial arrangement, not a time-based increase on the same debt.

Simple Example (Restructuring)

• Original Ṣukūk sale price: RM 100 million
• Arrears and unpaid profit: RM 10 million
• Old Ṣukūk is redeemed
• New Ṣukūk issued for RM 110 million

👉 This is permissible only if structured through a new Sharīʿah-compliant contract.

Practical Reality

• There have been several real cases of Ṣukūk default globally.
• Many of these cases required full restructuring, not just rescheduling.
• These experiences have contributed to:
  • Improved documentation,
  • Better risk assessment,
  • Stronger Sharīʿah governance in modern Ṣukūk structures.

Rescheduling vs Restructuring (Conceptual Difference)

• Rescheduling
  • Adjusts payment timing,
  • Does not increase total payable amount,
  • Keeps the original contract alive.
• Restructuring
  • Replaces the old facility,
  • Creates a new contractual relationship,
  • May involve a higher restructured amount.

Important ClarificationWhile innovative market segments such as diaspora Ṣukūk have not yet been developed, experiences from:

• Ṣukūk defaults,
• Liquidity stress events,
  highlight the importance of having clear Sharīʿah-compliant mechanisms for rescheduling and restructuring in the Islamic capital market.

Simple Exam-Friendly Summary

• Ṣukūk may be rescheduled or restructured due to default or financial distress.
• Rescheduling extends tenure without increasing the sale price.
• Restructuring replaces the old Ṣukūk with a new one and may increase the amount.
• Both processes must strictly comply with Sharīʿah rules.
• These mechanisms help issuers recover while protecting investor interests.

Key Takeaway
Rescheduling and restructuring are essential safety valves in the Ṣukūk market. When applied correctly and in line with Sharīʿah principles, they allow financially distressed issuers to recover, preserve value for investors, and maintain confidence in Islamic capital markets.