Qatar Global Sukuk Case Study
The Nature of the Qatar Sukuk
Qatar Global Sukuk (QGS) was established as a joint-venture special purpose vehicle (SPV) and was incorporated as a joint stock company. QGS evaluated trust endorsements (Sukuk), the returns of which will at last be utilized for general subsidizing purposes by the Government of the State of Qatar. The reason for this exchange is to raise the Shari'ah agreeable assets (Kammer et al., 2015). The SPV has beneficiary rights to buy land parcels from the governments and to re-sell them by issuing trust certificates (Sukuk) to the investors. The funds from this issuance were used for the development and improvement. The SPV leases the land parcel back to the Government of Qatar in conformity with the Master Ijarah Agreement.
Islamic Modes of Finance that Underpin the Qatar Sukuk
Islamic Financial Shariah compliant practice Sukuk underpins the Qatar Sukuk. Sukuk is a Shari’ah compliant monetary policy instrument, which is represented by an asset-based certificate (Yousri Ahmad, 2010). It involves an Islamic from of securitization of a process of the transfer of an asset to a large number of investors. Sukuk is also referred as Islamic bond, the concept of which arose in response to the growth of Islamic financial services.
According to the Accounting and Auditing Organization (Yousri Ahmad, 2010), there are fourteen possible forms Sukuk can take, which include equity based, Salam based, Ijarah based, Murabaha based, and mixed portfolio Sukuk. However, a closer look at Sukuk shows that Sukuk has elements that resemble both bonds and shares depending on the applicable underlying Islamic financial contract terms and structures (Ariff, Iqbal, & Mohamad, 2012). Nevertheless, Sukuk financial instruments are different from stocks as these have equal redeemable values that can be represented by a share of ownership. Sukuk ensures that debt can only be bought before the finance actually occurs and then it is going to be held up till maturity.
How These Modes of Finance Work
In an asset-based Sukuk structure, the investors rely on the credit strengths of obligator more than on the underlying asset (Kammer et al., 2015). These assets include the Land Parcel, title, Issuer’s rights, interest, and advantage. The Seller (Qatar Government in this case) will offer the Land Parcel to the Issuer. The Land Parcel is free from all cases and encumbrances and with all joined or aggregated rights as of the date of the Purchase Agreement. The Issuer uses the gross proceeds from the issuance and sale of the certificates to pay the price for the Land Parcel.
The terms of Master Ijara Agreement state that the Issuer will lease the Land Parcels back to the Government and the Government, in its turn, will pay semi-annual lease rentals. The Government will lease the Land Parcels for a period of seven years commencing on the Closing Date and terminating on the Periodic Distribution Date. The rental portions will be figured by reference to LIBOR and beginning with the rental payment date, an amortization payment, and will level with the …
