Iranian Sukuk Securities; all involved components!
Continuing our educational pieces on Iranian Sukuk Securities, this article is to explain all parties involved in the issuance processes and their roles. You can find more educational materials on Iranian debt market and Sukuk securities here.
There are 8 parties in place when it comes to the issuance of Sukuk securities in Iranian capital market:
- The sponsor: It is the entity in need of finances who decide to utilize Sukuk potentials in its favour. According to capital market regulations, the sponsor cannot issue any debt securities directly itself and they have to use a proxy for that matter. The proxy, AKA the financial intermediary institution, will act on behalf of the sponsor on the whole issuance process.
- The financial intermediary institution (AKA the issuer): Being under the supervision of the SEO (Securities and Exchange Organization of Iran), it is the sole entity allowed to issue Sukuk securities. Its major role is upon the issuance deadline and before the transfer of ownership to investors.
- The sale agent: a legal personality candidate by the sponsor to offer the Sukuk securities publically. Acting as a bridge between the issuer and investors, the sale agent is supervised either by the Central Bank of Iran (CBI) or the SEO. The issuer is responsible for the nomination of the sale agent.
- The agent of payment: The central clearing and depository of Iran (CSDI) is considered as the payment assignee which also bears ta task of clearing and settlement.
- The underwriter: as the name clears the topic, the underwriter is there to guarantee the purchase of any leftover securities in case of an unsuccessful IPO attempt. Being nominated by the sponsor again, this entity is the bridge which the intermediary will sell the securities to under specific circumstances. In the case of Ijarah Sukuk, given the fact that the underlying asset cannot be fractioned in integer pieces (e.g. an aeroplane), the presence of underwriter is obligatory. Dividable assets (e.g. a 7 story building) for which the size of purchase can be changed with regards to the pooled funds are free to choose no underwriter in the issuance process.
- The investors: Due to the nature of underlying assets and Sukuk securities type (the original deal) their role would differ (they are not just the profit bearers):
- For Sukuk Musharaka they are a partner;
- For Sukuk Ijara they are the landlord benefiting from the lease agreement;
- For Sukuk Mudaraba they are the asset owner;
- For Sukuk Murabaha they are the seller of goods in instalments;
- The Market Maker: the dealing broker or investment bank committed to balance the trades and provide the securities with a proper trading liquidity as well as leashing daily fluctuations limit. The market maker will act on the secondary trades of issued securities and guarantee that in case of an illiquid market, sellers can unload their securities with no difficulties.
- The Guarantor: as an integral part of Iranian Sukuk Securities, the guarantor is to secure payments of principal and interest on any issued Sukuk. If the issue comes up with a credit rating, the presence of a guarantor is not obligatory otherwise, an independent entity with acceptable solvency is a must to any Sukuk issuance scheme.
The below diagrams (taken from IslamicMarkets.com) is to demonstrate involved parties for some types of Sukuk securities:
Sukuk Ijarah:
Source: IslamicMarket.com
Sukuk Mudarabah:
Source: IslamicMarket.com
Sukuk Murabaha:
Source: IslamicMarket.com
Sukuk Musharaka:
Source: IslamicMarket.com
DISCLAIMER: This report has been prepared and issued by Agah Brokerage Firm on the basis of publicly available information, internally developed data and other sources believed to be reliable. The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. Agah does not assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions. Any expressions of opinions are subject to change without notice.
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