Two firms get initial nod for floating sukuk

30/03/2013 08:27 AST

Oman's market watchdog Capital Market Authority (CMA) has granted "in principal" approvals to two companies for issuing Islamic debt instrument or sukuk.

Tilal Development Company (TDC) earlier said that it is planning to float a OMR50 million-sukuk issue, which is seen by this year. Al Madina Financial and Investment Services is the lead arrangers of sukuk issue for TDC, which will use the proceeds of the issue for funding the expansion of its complex at Bausher.

Abdullah bin Salem bin Abdullah Al Salmi, Executive President of CMA, said that the regulating authority has introduced more or less same procedures for sukuk and the instrument will be traded on the stock exchange like any other bond issue. The Sharia supervisory boards of the issuer ensure that Sharia law is strictly adhered while structuring such instruments. The draft law for Islamic insurance or takaful firms and amendments in Capital Market Law for accommodating Sharia compliant debt instrument are now in final stage.

CMA earlier said that a joint stock company or a special purpose vehicle can float sukuk. The draft regulation made it clear that the SPV will not be subject to taxation. Few months ago, the draft regulation was circulated among related parties, including the potential issuers for getting their feedbacks. The draft regulation stipulates that a company can issue sukuk only to the extent of its net worth, which is not a condition in other countries.

Other major highlights of the draft regulation are formation of a Sharia Supervisory Board with at least three members, permission to go for either public issue or private placement of the instrument, mandatory listing of sukuk instrument on the bourse and rating of sukuk instrument is the discretion of the issuer. The members appointed to the Sharia Supervisory Board have to be competent to perform their functions.

However, unlike Islamic banks, the Sharia Supervisory Board can be of the lead arranger or an outside party like an advisory firm, who can be hired on a transaction basis. Another interesting aspect of the draft regulation is that the issuer can follow either the International Financial Reporting Standards or AAOIFI standards.

The draft regulation also well defined the structure of an SPV for the interest of sukuk holders.

CMA has also given initial approvals, some companies to establish new takaful companies and one approval to convert an existing conventional insurance company to takaful firm. A takaful insurance firm needs to have a minimum capital of OMR10 million and the company has to be a separate entity (unlike window operation in banking sector). The takaful firm has to come out with an initial public offering within a certain period.

Times of Oman