Are sukuk debt or equity? A classification of sukuk by regulatory bodies and credit rating agencies

2019 ◽  
Vol 7 (2) ◽  
pp. 75
Author(s):  
Rafisah Mat Radzi ◽  
Nurul Aini Muhamed
Keyword(s):  
Capital Market ◽  
Credit Rating ◽  
Islamic Law ◽  
Cash Flows ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Regulatory Bodies

Sukuk (Islamic bonds) are the Shariah (Islamic law) instrument that serves as an alternative to conventional bonds that are used in the modern capital market. In theory, sukuk represent a form of equity as they represent certificates conferring ownership to holders of an asset or pool of assets or claim to its cash flows. In practice, they have become known as Islamic bonds with their investors holding debt. Following the question of whether sukuk are debt or equity, this paper aims to classify sukuk from the perspective of regulatory bodies and credit rating agencies. Furthermore, to what extent the innovations in this Islamic instrument make it differ substantially from conventional bonds in practice will be examined.

scholarly journals The Effects of Employee Stock Options on Credit Ratings

2008 ◽  
Vol 83 (5) ◽  
pp. 1273-1314 ◽  
Author(s):  
Yen-Jung Lee
Keyword(s):  
Stock Options ◽  
Credit Rating ◽  
Credit Ratings ◽  
Fair Value ◽  
Cash Flows ◽  
Share Repurchases ◽  
Credit Rating Agencies ◽  
Employee Stock Options ◽  
Rating Agencies ◽  
Unfavorable Effect

ABSTRACT: This paper examines whether outstanding employee stock options (ESOs), which represent the firm’s contractual obligation to deliver shares upon ESO exercise, affect firms’ credit ratings. I hypothesize that outstanding ESOs play two information roles—(1) suggesting equity infusion, and (2) predicting share repurchases—that help credit-rating agencies evaluate the issuing company’s debt service ability. Consistent with these hypothesized roles, results indicate that the present values of expected cash proceeds and tax benefits from ESO exercise have favorable effects on credit ratings. In contrast, the present value of the expected cost of ESO-related share repurchases has an unfavorable effect on credit ratings and this unfavorable effect is more pronounced for firms with a greater tendency to repurchase shares. The after-tax fair value of outstanding ESOs, which summarizes the effects of the above three ESO-related cash flows, is negatively associated with credit ratings. Taken together, these findings are consistent with credit-rating agencies incorporating the information conveyed by outstanding ESOs regarding potential equity infusion and ESO-related repurchases in their credit risk assessments and assigning lower credit ratings to firms with greater values of outstanding ESOs.

scholarly journals U-8 The Concept, Need and Significance of Sharia rating in Islamic Financial institutions in the perspective of Credit Rating Agencies

2021 ◽  
Vol 5 (1) ◽  
pp. 111-129
Author(s):  
Muhammad Mushtaq Ahmed ◽  
Javed Khan
Keyword(s):  
Financial Institutions ◽  
Financial Services ◽  
Credit Rating ◽  
Financial Institution ◽  
Credit Rating Agencies ◽  
Financial Industry ◽  
Rating Agencies ◽  
The Public ◽  
Islamic Financial Institutions ◽  
Regulatory Bodies

Sharia compliance is considered the basic component of Islamic financial industry as sharia permissibility is one of the basic motive for majority of the customers of Islamic Financial services. Presently the assurance regarding the sharia compliance of Islamic financial institution is given by the Sharia Advisor or Sharia board of respective Islamic financial institution. But there is no process, similar to the credit rating agencies, which provides the public an independent assessment of the commitment of different Islamic financial institution as regard to follow sharia injunctions in true letter and spirit for comparison with other Islamic financial institution. In this paper, the concept of credit rating, its origin, importance and advantages are discussed. In the light of the credit rating agencies practices, the concept of sharia rating and its importance are elaborated. It is observed and recommended that sharia quality rating will be very beneficial for all the stakeholders of the Islamic financial institutions as well the Islamic financial industry hence regulatory bodies of Islamic financial institutions, IFI’s and Credit Rating Agencies shall work together to further refine the concept for implementation of Sharia rating in the industry.

scholarly journals THE ROLE OF AUDIT AND CREDIT RATING AGENCIES IN THE ASSESSMENT OF COMPANY CREDITWORTHINESS WITH SPECIAL FOCUS ON BANKS

2019 ◽  
pp. 089
Author(s):  
Mirjana Jemović ◽  
Milica Đorđević ◽  
Jelena Radojičić
Keyword(s):  
Financial Institutions ◽  
Credit Rating ◽  
Fiscal Year ◽  
Credit Rating Agencies ◽  
Special Focus ◽  
Delayed Reaction ◽  
Rating Agencies ◽  
Crisis Events ◽  
Regulatory Bodies

Audit and credit rating agencies have a significant responsibility in assessing company creditworthiness and giving opinions on the client’s ability to continue business in the future, most often the next fiscal year. Responsibility is even greater when it comes to banks and their creditworthiness. The financial crisis of 2007 and the bankruptcy of a number of banks and other financial institutions imposed a need to seek accountability for the “delayed” reaction of regulatory bodies and significant fiscal consequences of the crisis. The aim of the paper is to evaluate the efficiency of credit rating agencies and external audit in assessing the creditworthiness of companies and banks, not for the purpose of finding their individual responsibilities, but to look at possible coordinated and joint actions to prevent future crisis events.

Different Structure, Neither Debt nor Equity: What Should Be the Approaches for Restructuring Ṣukūk (Islamic Bonds) Default?

2020 ◽  
Vol 35 (1-2) ◽  
pp. 190-211
Author(s):  
Rafisah Mat Radzi
Keyword(s):  
Basic Concept ◽  
Credit Rating ◽  
Standard Setting ◽  
Credit Rating Agencies ◽  
Rating Agencies

Abstract This study discusses the issues of ṣukūk (Islamic bonds) default surrounding its transaction structures and potential for restructuring the default. By explaining the basic concept of ṣukūk structure, this study further provides a classification of ṣukūk from the perspectives of the standard-setting bodies and credit-rating agencies. Since the structures that underpin ṣukūk vary and technically ṣukūk is neither debt nor equity, this study provides the potential restructuring of ṣukūk in cases of default. The contingent approaches such as extending maturity, haircut and debt-equity swap are based on the classification of ṣukūk structures and require a case-by-case approach.

scholarly journals The Effect Of Family Firm On The Credit Rating: Evidence From Republic Of Korea

2016 ◽  
Vol 32 (6) ◽  
pp. 1575 ◽  
Author(s):  
Soo-Joon Chae ◽  
Kwang-Wook Oh
Keyword(s):  
Corporate Governance ◽  
Capital Market ◽  
Family Firms ◽  
Credit Rating ◽  
Credit Ratings ◽  
Governance Structure ◽  
Credit Rating Agencies ◽  
Corporate Values ◽  
Rating Agencies ◽  
The Capital Market

This study examined whether there were differences in the credit ratings of family firms, one type of business ownership and corporate governance in Korea. Credit rating agencies which evaluate a company's ability to pay back the debt play a key role in evaluating corporate values in the capital market. A variety of standards are applied to evaluate corporate credit ratings. The corporate governance structure is also under consideration. Credit rating agencies may give excellent credit ratings to family firms if they judge that family companies have efficient governance structures resulting in lower agency costs as companies which try to match minority shareholders' interests. On the other hand, they may give lower credit ratings to family firms if they judge that family firms have a negative impact on firm performance. In this context, this study planned to investigate how credit rating agencies constituting the mainstay in the evaluation of corporate values with analysts judged the roles of family firms which had been controversial in previous studies in the capital market, and present direct results.

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