Hybrid Sukuk

Sukuk issuance and trading have become essential methods of investment as the market has grown significantly. However, Sukuk structures based on a single underlying contract lack flexibility and pose greater risks due to the concentration of assets or projects. To address these issues and cater to the needs of investors, hybrid Sukuk structures have emerged in the market.

Hybrid Sukuk or mixed asset Sukuk is usually based on a pool of assets that can have varied underlying contracts, such as Mudaraba, Murabaha, Ijara, etc. Such asset pooling facilitates the mobilization of larger funds and allows diversification to mitigate asset class risk. This type of Sukuk structure also offers greater flexibility in terms of tenors and profit-sharing ratios, making it more attractive to a wider range of investors.

The contracts used may vary depending on the nature of the transaction and the preferences of the parties involved.

The advantage of a hybrid Sukuk is that it is a flexible financial instrument that enables issuers to structure their financing transactions in a way that complies with Islamic finance principles while meeting their specific financing needs. For instance, trading Istisna and Murabaha Sukuk on the secondary market is regarded as being against Sharia. However, if the pool includes at least 51% of tradable Sukuk, the hybrid Sukuk structure allows the Sukuk to become tradable. A hybrid Sukuk, for instance, might also combine a Murabaha and a Mudaraba contract; see SA153VK0GKJ8 - SABB, FRN 22jul2030, SAR as an example.

Examples of hybrid Sukuk:

• XS2384355520 - Kuveyt Turk Participation Bank, 6.125% 16dec2031, USD
• XS2358712896 - Sharjah, 3.2% 13jul2031, USD