On October 24, 2017, an Explanatory Note on Issuance and Subscription of Islamic bond (Sukuk) in Labuan International Business and Financial Centre (IBFC) has been introduced as part of the efforts to facilitate and promote the development of the Islamic capital market, in particular the sukuk market in IBFC.
WHAT ARE SUKUK?
Sukuk is a trust certificate. Generally, sukuk represents a beneficial ownership interest in the underlying assets. Returns on sukuk are tied to the returns earned through the underlying assets.
Bond is a contractual debt obligation whereby the issuer is obliged to pay bond holders, the interest and principal on certain specified dates.
WHO CAN ISSUE SUKUK IN LABUAN?
Both residents of Malaysia and non-residents can issue sukuk in or from Labuan.
- Issuance of sukuk by a resident of Malaysia is subject to the requirements of the Capital Markets and Services (Amendment) Act 2015 (CMSA) and the Foreign Exchange Administration Rules issued by Central Bank of Malaysia.
- A non-resident of Malaysia who issues sukuk in or from Labuan is required to register the disclosure documents with the Securities Commission Malaysia as specified in the CMSA.
Non-Islamic company or institution can issue sukuk as long as it is issued pursuant to the Shariah principles and concepts approved by the Shariah adviser appointed by the issuer.
WHO CAN SUBSCRIBE TO SUKUK ISSUED IN LABUAN?
Both residents of Malaysia and non-residents can subscribe to sukuk issued in or from Labuan.
TYPES OF SUKUK STRUCTURES THAT CAN BE ISSUED IN LABUAN?
- Sukuk al-Ijara
- Sukuk al-Mudaraba
- Sukuk al-Musharaka
- Sukuk al-Murabaha
- Sukuk Wakala Bil-Istithmar
- Other sukuk and hybrid sukuk structures that are approved by the Shariah adviser
TYPES OF UNDERLYING ASSETS?
Examples of assets that can be used to structure sukuk in Labuan:
Real estate, factories, building, equipment, vehicles, rights to services, Ijara assets, sukuk certificates, Shariah-compliant shares, istisna’ receivables, Murabaha receivables and any other assets approved by the Shariah adviser as underlying assets for the sukuk issuance.
OFFER OF SUKUK EXCLUDED FROM PRIOR APPROVAL OF LABUAN FSA?
- The first time investment of each of the initial sukuk holders is not less than RM250,000 (or the equivalent in any other currency); or
- The first time investment of each of the initial sukuk holders is less than RM250,000 (or the equivalent in any other currency) and the number of persons to whom the offer or invitation is communicated does not exceed 50; and
- They are in possession of sufficient information to be able to make a reasonable evaluation of the offer or invitation.
For the issuance of sukuk excluded from Labuan FSA approval, the resident secretary of the Labuan SPV shall notify Labuan FSA not later than 30 calendar days after the issuance of the sukuk in Labuan.
NEED PRIOR APPROVAL OF LABUAN FSA & REQUIREMENTS FOR APPOINTMENT OF TRUSTEE?
For sukuk issuance which requires prior approval of Labuan FSA, the Labuan SPV shall appoint a Labuan trust company as trustee for the sukuk holders of the Labuan Special Purpose Vehicle (SPV).
Labuan FSA may approve any other person to act as co-trustee with the Labuan trust company for the sukuk holders.
LISTING OF SUKUK ISSUED BY LABUAN SPV?
The foreign currency-denominated sukuk issued out of Labuan may be listed in any of the international exchanges including the Labuan International Financial Exchange (LFX).
BENEFITS OF LABUAN IBFC FOR SUKUK ISSUANCE
Well-developed Islamic Finance Infrastructure
- Comprehensive legal, regulatory and Shariah framework to ensure certainty and integrity in Islamic financial transactions.
- Breadth and depth of the Islamic capital market with wide range of Islamic financial instruments as well as diversified and skilled financial service providers.
- Pool of talent in structuring new innovative Islamic financial instruments.
- Wide investor base from Islamic and conventional financial institutions, pension funds and fund management companies.
Supportive Islamic Finance Ecosystem
- Tax neutrality on all Islamic financial instruments and transactions.
- Stamp duty exemption on sukuk documentation.
- Liberal foreign exchange administration policy – free to use proceeds in and out of the country.
- Mutual recognition of Shariah opinions issued in other jurisdictions.
- Labuan IBFC is the gateway to Asia Pacific markets and economic opportunities, making it well placed for attracting investors for sukuk issuance.
- Competitive pricing, which may be better as compared to conventional bond pricing due to the high demand of sukuk in the region.
Please contact your usual Kensington Trust Group contact or write to firstname.lastname@example.org if you have any questions.