UTILISATION OF SUKUK PROCEEDS
Background
The Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC) has, at its 190th meeting held on 27 October 2016, discussed on utilisation of sukuk proceeds from any issuance of sukuk based on various Shariah principles for various purposes.
Issue
The issue in discussion was whether the utilization of sukuk proceeds raised from any issuance of sukuk based on various Shariah principles for various specified purposes is considered as Shariah-compliant
Resolution
The SAC has resolved that as a general ruling, the proceeds raised from any issuance of sukuk must be utilised for Shariah compliant purposes only. The SAC has further resolved that utilisation of the sukuk proceeds for the following purposes are Shariah compliant:
(1) Refinancing of Conventional Borrowings
  • The sukuk proceeds may be utilised to refinance (wholly or partly) conventional borrowings.
 (2) General Business
The sukuk proceeds may be utilised for general business of the issuer including for general corporate purposes, working capital requirements and capital expenditures provided that the principal activities of the issuer are Shariah compliant based on the following business activity benchmarks (Benchmarks):
  • (i) 5% in respect of businesses/activities as specified in Appendix 1; or
  • (ii) 20% in respect of businesses/activities as specified in Appendix 2
  (3) Construction of Building Consisting of Shariah Compliant and Shariah Non-Compliant Activities (Building with Mixed Activities)
The sukuk proceeds may be utilised for construction of the Building with Mixed Activities provided that the floor area to be used for the Shariah non-compliant activities is less than 49% of the total floor area.If the construction involves Building with Mixed Activities as well as building with fully Shariah-compliant activities, the denominator for computing the 49% benchmark shall be based on the total floor area of the Building with Mixed Activities only.
  (4) Refurbishment, Expansion, Repair and/or Maintenance of the Building with Mixed Activities
The sukuk proceeds may be utilised for refurbishment, expansion, repair and/or maintenance of the Building with Mixed Activities subject to the following conditions:
  •  (i) If the revenue received from the Shariah non-compliant activities in the Building with Mixed Activities could be determined, the said revenue computed against the total revenue from the Building with Mixed Activities must be less than the following Benchmarks:
    (a) 5% in respect of businesses/activities as specified in Appendix 1; or
    (b) 20% in respect of businesses/activities as specified in Appendix 2; or
  •  (ii) If the said revenue could not be determined, the issuer must ensure and confirm that the section/area used for Shariah non-compliant activities must be less than 20% of the total floor area of the Building with Mixed Activities.
The refurbishment, expansion, repair and/or maintenance of the Building with Mixed Activities must be done on a general basis and not on any specific area where Shariah non-compliant activities are carried on in the said Building with Mixed Activities.
  (5) Operation and Management of the Building with Mixed Activities
  • The sukuk proceeds may be utilised for the operation and management of the Building with Mixed Activities by the issuer provided that the revenue received from the Shariah non-compliant activities in the said Building with Mixed Activities, computed against the total revenue from the Building with Mixed Activities must be less than the following Benchmarks:
  • (i) 5% in respect of businesses/activities as specified in Appendix 1; or
  • (ii) 20% in respect of businesses/activities as specified in Appendix 2.
  (6) Acquisition of the Building with Mixed Activities
The sukuk proceeds may be utilised for acquisition of the Building with Mixed Activities provided that the revenue received from the Shariah non-compliant activities in the said Building with Mixed Activities to be acquired by the issuer, computed against the total revenue from the Building with Mixed Activities must be less than the following Benchmarks:

  • (i) 5% in respect of businesses/activities as specified in Appendix 1; or
  • (ii) 20% in respect of businesses/activities as specified in Appendix 2.
 The Benchmarks as specified above are only applicable at the point of issuance of the sukuk.

Appendix 1

  1. Conventional banking;
  2. Conventional insurance;
  3. Gambling;
  4. Liquor and liquor-related activities;
  5. Pork and pork-related activities;
  6. Non-halal food and beverages;
  7. Shariah non-compliant entertainment;
  8. Tobacco and tobacco-related activities; and
  9. Other activities deemed non-compliant according to Shariah as determined by the SAC of SC.

Appendix 2

  1. Share trading;
  2. Stockbroking business;
  3. Rental received from Shariah non-compliant activities; and
  4. Other activities deemed non-compliant according to Shariah as determined by the SAC of SC.