«Istithmar» refers to Investment in Arabic, Istithmar Sukuk are Certificates of equal value representing undivided shares in ownership of tangible assets, usufruct, and services, or (in ownership of) the asset of specific projects or special investment activity.
Investment Sukuk holders are also liable for obligations arising from the certificates in proportion to their ownership. The returns to the investors are based on the profits generated from the project, which are shared between the investors and the issuer according to a pre-agreed ratio.
Istithmar Sukuk structure was developed to identify any potential intangible assets with cash flow generation of the issuer to structure the Sukuk issuance. The issuer must make sure that this is not misconstrued as debt trading, though. The simultaneous securitization and tradability of the rights and obligations of Sukuk contracts are viewed from a Sharia perspective as being permissible.
Under the Istithmar Sukuk structure, rights under Islamic contracts (including rights under Ijara contracts and Murabaha Receivables (up to 30%) or Istisna receivables) will be securitized as Sukuk contracts and traded under the Istithmar Sukuk structure.
Saudi Arabian businesses have begun using Istithmar Sukuk structures to securitize intangible assets with the cash flow generation of the originator to structure Sukuk issuance.
Example of Istithmar Sukuk:
SA13GVK2FT34 - Saudi Electricity Company, FRN 30jan2054, SAR