Wakalah-compliant sukuk first explained

Author: Brian Yap | Published: 13 Jul 2016

Malaysia’s Sime Darby Berhad’s successful application of the wakalah principles to a perpetual sukuk has broken new ground, but the absence of relevant guidelines complicated the process of seeking regulatory approval. 

Malaysia’s Securities Commission (SC) introduced a revised lodge and launch framework in June last year exempting issuers of unlisted capital market products, such as securities, from seeking the SC’s approval.

But the existing regime only contains guidelines for typical bonds and sukuk, and there are no rules for issuers of covenant-lite perpetual instruments to follow.

"The challenge was to fit all these features within a typical wakalah structure whereby returns from a portfolio of assets must be to the sukuk-holders as profit payments," said Chin Sook Kwan, partner at ZICOlaw in Kuala Lumpur.

The previous lodge and launch guidelines were criticised for slowing the approval process down. They put significant pressure...