Different Structure, Neither Debt nor Equity: What Should Be the Approaches for Restructuring Ṣukūk (Islamic Bonds) Default?

Abstract

This study discusses the issues of ṣukūk (Islamic bonds) default surrounding its transaction structures and potential for restructuring the default. By explaining the basic concept of ṣukūk structure, this study further provides a classification of ṣukūk from the perspectives of the standard-setting bodies and credit-rating agencies. Since the structures that underpin ṣukūk vary and technically ṣukūk is neither debt nor equity, this study provides the potential restructuring of ṣukūk in cases of default. The contingent approaches such as extending maturity, haircut and debt-equity swap are based on the classification of ṣukūk structures and require a case-by-case approach.