The Global Sukuk Industry
In 1990, in Malaysia Shell MDS Sdn Bhd issued a sukuk ijarah worth RM 125 million. Issuances grew 145% in 2006 compared to 2005 to reach US$27 Billion. The sukuk market peaked at US$47 Billion in 2007 and dropped by 55% to US$21 Billion in 2008. The market recovered in 2009 to reach a total issuance of US$31 Billion, which was higher than the total issuance in 2006. 2012 saw US$110 Billion in sukuk issuances while 2013 tapered off with US$79 Billion.
Sukuk in the USA
The US has seen two major sukuk issuances including the East Cameron Gas Sukuk, which was the first ever musharakah sukuk in America backed by oil and gas assets maturing in 2006 and the General Electric Sukuk, which is an ijarah sukuk backed by aircraft leases due for maturity in November, 2014. Although the Cameron Gas Sukuk experienced some technical difficulties, the General Electric Sukuk is performing well and there is a large potential for sukuk in the United States as a capital raising instrument for American firms. In fact, both the state of New York and the state of Illinois have initiated state bills in their legislatures enabling sukuk transactions.
The East Cameron Gas Sukuk Summary
East Cameron Partners LP (“ECP” or the “Originator”)
Instead of being solely used to support the capital and operating costs of drilling and operating wells in the Gulf of Mexico for East Cameron Partners, the proceeds were also used to pay most of the conventional debt of the company. This brought the debt- to- equity ratio of the company to a Shariáh compliant level, however, also bankrupted the sukuk. On October 16, 2008, East Cameron Partners filed for bankruptcy protection under chapter 11, claiming its inability to pay the periodic returns on its USD166 million sukuk issued in June 2006.
The General Electric Sukuk Summary
Sukuk Name: GE Capital Sukuk
Issue Size: USD $500,000,000.00
Closing Date: Shari’ah structure: Ijarah
Underlying Assets: Aircraft leases
Rated by: Standard & Poor’s
Payments: Semi- annually (May and November, due in 2014)
The sukuk instrument is growing in popularity around the world as an innovative financing instrument and a way to raise funds for various projects, business expansion, and increased competitiveness, which attracts ethical and creative investors worldwide. The USA should consider taking advantage of this opportunity on a wider scale in order to attract investments in the USA. Contact Camille Paldi at email@example.com.
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