Sukuk Bond Analysis

850 Words 4 Pages
There are several yield differences between the Islamic Sukuk and conventional bond. Firstly, the yield differences showed that the difference of conventional bonds suffer more risk due to the nature of receiving the high yield ratio than Sukuk. Conventional bonds generate two cash flows for investors. First, the face value of which is a fixed amount of funds that the bond issuer is obligated to pay to the bondholder when the bond matures. Second, the interest is a fixed amount of funds that the bond issuer is obligated to pay to the bondholders periodically (annually and / or semi-annually) until the bond matures. Free cash flow of the total profit or loss that the issuer has gained from using funds raised through the bond issue. Price volatility …show more content…
It is analysed that the common bond holders do not have an obligation to engage in business, while the Sukuk holders have the power to engage in the business because of the nature of Mudaraba under Shariah law. Therefore, it is concluded that the investors will surely go to Sukuk as it is subject to engage in certain business and bond owners.
Third, in terms of capital guarantee, in Islam there is no guarantee of capital to holders of sukuk but there may be a third party that is willing to guarantee the voluntary or guarantor, provided that the guarantee contract separate from the contract between the two parties in a sukuk, which means that security is free. In case of conventional bonds, bond issuers provide full guarantee on capital and the benefits to be obtained.
Forth, investment criteria also indicate that the bonds may be used for any purpose of the finance in order to receive the interest amount. Bonds will be used to finance any asset, project, business or joint venture that complies with local laws. Meanwhile, Islamic bonds are based on Shariah compliant structure, which it is only can invest in Halal business and receive profit and loss in business. Any transactions (buying, selling, and distribution) involving alcohol, pork, illegal drugs, gambling, pornography, and weapons are
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In the case of valuing the price of bond, the face value of the price is purely based on the system of credit worthiness of the issuer, whereas the face value of the Sukuk is based on the market value that is determined for the particular underlying asset value.
Furthermore, there are two other factors to include when analyzing the yield difference between the two markets. The first factor is the rewards and the risks involved in holding the bond to maturity, which in the case of traditional bonds. Bondholders will only receive a fixed interest rate for the use of the term in mature and produce the final maturity of the bonds, indicating that bondholders have no control to hold the bonds over a period of maturity.
On the other hand, the Sukuk holders are subject to hold bonds and act as a guarantee of the owner, because they received the advantages and disadvantages based on the current performance of the bond issuer. Another factor that will affect the cost impact will change the ratio of the two bonds. In the case of traditional bonds, bondholders are not subject to incur any cost of the project or business proposal. He is only responsible for receiving dividends and not subject to pay the additional cost of the project. Therefore, there is less risk involved in holding

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