The Securities and Exchange Commission of Pakistan (SECP) has laid down new conditions for any issuer ie company, Special Purpose Vehicle or body corporate, which intends to issue Sukuk instruments. Under SRO.112(I)/2015 issued by the SECP here on Tuesday, the new "Issue of Sukuk Regulations, 2015" has been notified.
The notification said that the regulations shall apply to all issues of Sukuk by any company, Special Purpose Vehicle or body corporate to the general public or a section of public or to the existing security holders of the issuing company or to the Qualified Institutional Buyers. These Regulations shall not apply to an Issue by any company, a Special Purpose Vehicle or body corporate specifically setup by the Federal Government or any provincial Government for the purposes of issue of Sukuk, under any other law.
As per SECP, "Sukuk" means an instrument of equal value representing investment of the Sukuk holders in the capital of the issuer to the extent of undivided share in ownership of the identified tangible assets, usufruct and services or in the ownership of the assets of particular projects or special investment activity based on characteristics and structures including participatory mode approved by the Shariah Advisor.
As per conditions for issue of Sukuk, the SECP said that any issuer that intends to issue Sukuk shall fulfill the following conditions namely:
(a) the issuer's rating is not lower than triple B minus (BBB-) and the instrument's rating is not lower than triple B (BBB) assigned by a credit rating company registered with the Commission under the Credit Rating Companies Rules, 1995.
(b) it has arranged appropriate security, where required, in the form acceptable to the Investment Agent.
(c) it has obtained consent of a depository company to declare the Sukuk as eligible security for the purposes of depository system.
(d) any other condition as may be specified by the Commission. All Sukuk to be listed on a stock exchange shall be issued only in book-entry form. Where a Sukuk is structured using a single Shariah concept, the Sukuk shall preferably be named according to that concept.
It said that the issuer shall at all times during the tenure of the issue ensure that its principle business is not against the Shariah principles. The issuer shall ensure that proceeds of the Issue are utilised in the form and manner as disclosed in the Offering Document. The Issue shall not embed any swaps, options or other derivatives except in the case of convertible or exchangeable Sukuk.
Where Sukuk are convertible or exchangeable into ordinary shares, the option of conversion or exchange, as the case may be, shall be at the discretion of the investors and the underlying ordinary shares are listed at the time of the offer of such Sukuk.
Where approval of the Commission is needed for issue, circulation and publication of prospectus, the issuer shall submit the draft prospectus in MSWord format for review and the final prospectus in PDF format for record.
The issuer shall, before the issue of Sukuk, appoint in writing a Shariah Advisor and obtain from it Shariah Pronouncement ascertaining that the basis on which the Sukuk are structured and the principal business of the issuer are in conformity with principles of Shariah.
The Shariah Pronouncement must contain at least such information and certification and in the form and manner as notified by the Commission from time to time. The appointment letter or agreement shall clearly define the roles and responsibilities of the Shariah Advisor, SECP added.
The issuers of Sukuk shall, while preparing their financial reports, ensure that all the relevant standards, notified by the Accounting and Auditing Organisation of the Islamic Financial Institutions and the Islamic Financial Accounting Standard as notified by the Commission for adoption, from time to time relating to the financial reporting and accounting treatment of Sukuk are complied with, it added.
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