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Rethink structure of sukuk says key study

MANAMA: Islamic bonds are not perceived as positively as conventional debt markets, according to research carried out by the Lebanese American University (LAU) into the sukuk markets in Malaysia.

That was the message from LAU assistant professor of finance Dr Rima Turk Ariss, who was speaking on the sidelines of the fourth Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) conference at the Crowne Plaza yesterday.

"Our research into sukuk and conventional bond issuance in Malaysia suggests there is a need for rethinking the structure and marketing in sukuk.

"At present our research shows that sukuk is not perceived as positive in the market.

"We analysed stock market reaction to ordinary bond issue and sukuk issues where dual financing opportunities exist in Malaysia.

"Stock market valuations fall after sukuk issues compared to bonds," she said.

"Investors' perception is that sukuk are significantly different from conventional bonds," she added.

"The sukuk market remains insignificant in comparison to conventional bond market but it is regarded as a higher risk and less profitable option than conventional bonds according to our research.

"Companies who opt for sukuk tend to have lower profit ratios and are more leveraged.

"Our research in the Malaysian market also suggests that when companies feel they have good investment prospects they opt for conventional issues of debt securities," she said.

"But when they are not so confident they tend to go for a sukuk issue." business@gdn.com.bh



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