Comparative analysis of Sukuk issuance of US$ tier 1 capital certificates Boubyan bank and US$ additional tier 1 Adib capital invest 1 Ltd

Abstract

Purpose: 1.Analyze the reason why company issue Perpetual Sukuk 2.Analyze the reason why investors buy Perpetual Sukuk 3.Analyze to what extent the Perpetual Sukuk structure comply with AAOIFI Shariah Standard 2015

Design/Methodology/Approach: This study use the qualitative method which use content analysis to compare perpetual sukuk issued by Boubyan Bank and Abu Dhabi Islamic Bank PJSC (“ADIB”) via ADIB Capital Invest 1 Ltd towards the Shariah principles and AAOIFI Shariah Standard 2015. Findings: This study have examined the perpetual sukuk Mudaraba issued by both ADIB and Boubyan. They are in accordance with AAOIFI standards in some features and other some are not really fit with standards which may raise Sharia issues in terms of perpetuity, profit distribution, capital guarantee and subordination. Shariah concerns highlighted here are common in both banks except in two cases, one in ADIB and another one in Boubyan. The perpetuity in Mudaraba contract does not give right of liquidation for certificate holders although the Mudaraba contract does not have any fixed maturity date. This is common in both banks. The option to indemnify the investors’ capital when the banks exercise their option to liquidate the contract, implies the concern on guaranteeing capital in Mudaraba. Furthermore, in Boubyan the indemnification of profit also found in case of shortfall. The reinvestment of Mudaraba reserve also cater the issue of profit sharing ratio between the partners. Finally, in terms of subordination, mainly three issues have been found such as making sukuk holders liable for others debt, waiving the right before it is established and not to share in the loss after banks comingle their asset with Mudaraba. However, there is no issue on perpetuity of Mudaraba in general, determining a ceiling as expected profit and commingle the capital of Mudaraba with the Mudarib’s other assets. Research Limitations/Implications: This research is limited to content analysis. However, this research does not provide any empirical findings. Originality/value: This paper discusses the comparative analysis between two Tier 1 sukuk issued based on Mudaraba and analyze the features of sukuk in terms of meeting the Tier 1 requisite and Shariah requirements.