Identifying the determinants of corporate sukuk yield spread: evidence from Malaysia
Sukuk has become one of the main instruments for corporate to raise fund nowadays. Aside from its ability to reach a wider range of investors, being part of an ethical investment game adds to its global acceptance. With the total outstanding reached USD 434.8 billion in 2017 worldwide, the sukuk market has become more conceptually and practically complex. As they have been traded side by side with conventional bonds which both are grouped in the same asset class-fixed income, there is a suspicion whether both spreads are explained by the same determinants or not. Ideally, sukuk spread should behave differently because they conform with Shariah requirements at all time. Therefore, this paper takes an opportunity to unveil what are the determinants of sukuk spread, focusing on Malaysian corporate sukuk issued from a period of 2010-2017. Our cross-sectional analysis offers interesting findings. Common determinants of bonds spread such as credit rating, tenure, and issuance amount significantly determined sukuk spread. In addition to that, sukuk main features such as sukuk structure (asset-based and asset-backed) and underlying Shariah contracts also significantly explained the spread, with the exception of Mudharabah and Wakalah. Findings suggest that Shariah requirements are priced and reflected accordingly in the spread. Other material findings include high proportionate difference of spread for asset-based sukuk against asset-backed sukuk, where intuitively can be understood that the latter is safer investment than the latter. Based on the findings, the study proposes two initiatives to the policymakers: (i) to encourage the corporate issuer to issue more asset backed or hybrid sukuk in order to promote social well-being and economic sustainability and (ii) to explore valuation and pricing mechanism specific to sukuk according to underlying structures, Shariah contracts, and assets.
Sukuk , Spread , Cross-section , Sukuk structure , Underlying Shariah contracts
Abu Bakar, F. (2020). Identifying the determinants of corporate sukuk yield spread: evidence from Malaysia (Master dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.org/handle/INCEIF/3636