Background
The Shariah Advisory Council of the Securities Commission Malaysia (the SAC) had, at its 174th meeting held on 30 July 2015 and 175th meeting held on 27 August 2015, respectively, deliberated on a proposed issuance of redeemable convertible unsecured Islamic debt securities (RCUIDS), together with free detachable warrants by a company which is listed on Bursa Malaysia, based on the Shariah principle of Murabahah via Tawarruq arrangement.

Issue
The issues in deliberation were on the following:

(i) The status of the RCUIDS and warrants in the event of the reclassification of the Shariah status of the issuer’s securities from Shariah compliant to Shariah non-compliant by the SAC, during the tenure of the RCUIDS; and

(ii) The options available for the RCUIDS holders in the event of the reclassification of the Shariah status of the issuer’s securities from Shariah compliant to Shariah non-compliant by the SAC, during the tenure of the RCUIDS.

Resolution
The SAC had resolved on the following:

(1)      In the event the RCUIDS has been issued and no conversion has been made

If the RCUIDS has yet to be converted into new shares of the issuer and the issuer’s securities has been reclassified from Shariah compliant to Shariah non-compliant by the SAC, the RCUIDS holders have the rights to do the following:

(a)      the RCUIDS holders have the discretion to convert the RCUIDS into new shares of the issuer. In the event the RCUIDS is converted into new shares of the issuer, then the guidance on timing for disposal of Shariah non-compliant securities as provided in the “List of Shariah-Compliant Securities by the Shariah Advisory Council  of the Securities Commission Malaysia” (“Guidance on Disposal of Shariah Non-Compliant Securities”) may be applicable;

(b)     the RCUIDS holders may sell the RCUIDS to third parties; or

(c)      the RCUIDS holders may require the issuer to redeem the RCUIDS in cash based on a formula to be agreed between the issuer and the RCUIDS holders.

(2)      In the event the RCUIDS has been issued and converted into new shares of the issuer

If the RCUIDS has been converted into new shares of the issuer and the issuer’s securities has been reclassified from Shariah compliant to Shariah non-compliant by the SAC, the Guidance on Disposal of Shariah Non-Compliant Securities may be applicable.

(3)      Warrants

If the warrants have not been exercised and the issuer’s securities has been reclassified from Shariah compliant to Shariah non-compliant, the Guidance on Disposal of Shariah Non-Compliant Securities may be applicable.

The above requirements must be disclosed in the disclosure documents pertaining to the issuance of the RCUIDS and the Shariah pronouncement.

The SAC further resolved that the above resolution is also applicable for any redeemable convertible secured instruments proposals which have similar convertibility features and structured based on the Shariah principle of Murabahah via Tawarruq arrangement.