The percentage of the redeemed outstanding SAR-denominated Regulatory Tier 2 Capital Sukuk will account for 53.05% of the total. Bank Albilad intends to redeem its Sukuk for a total value of over $267mln due in 2026.
An Islamic financial certificate compliant with Sharia or Islamic religious law is known as Sukuk. It is similar to a bond in the Western world of finance. Islamic law prohibits ‘interest’ as we know of it in the western world. It is known as ‘riba’ in Islamic finance. Due to this reason, debt instruments commonly used in the west do not get permitted to be used as investment methods to raise any capital for a business. The issuer of a Sukuk then proceeds to sell the certificate to an investor group. The gains go towards the purchase of an asset that the investor group has an interest in. The issuer of Sukuk is obligated to make a contractual promise to buy back the bond in the future at par value. Sukuk in Islamic finance involves interest from ownership of a direct asset, whereas bonds in the west are indirect interest-bearing debt obligations.
An investor in Sukuk directly owns a portion of the asset connected to the investment instead of a debt obligation. This means that Sukuk holders receive a piece of the earnings that get generated by the associated asset. Even though bonds and Sukuk both provide payments to investors, the income which the investors get from Sukuk cannot be speculative as that would mean that the income is no longer halal.
Sukuk became extremely popular in 2000, with the first issue of such products in Malaysia. In 2001, Bahrain too followed in the footsteps of Malaysia. Sukuk is, mainly used by state-run organizations and Islamic corporations taking up an ever-growing share of the fixed-income market around the globe.
Bank Albilad is an Islamic Saudi Arabian bank established in 2004. The 10-year Sukuk issue was first offered on 30 August 2016 with an aggregate face value of SAR 2 billion through a private placement. Albilad Capital will be in charge of the Sukuk deposit and contract details.