An asset based Islamic bond. Similar to an asset backed bond, Sukuk is a form of commercial paper that provides an investor with ownership in an underlying asset and a return based on this ownership.
The issuing entity needs to identify existing assets to sell to the Sukuk investors, via transference to a special purpose vehicle (SPV). The Sukuk investors then have a proportionate beneficial ownership in these assets.
Investors typically take on the credit risk of the issuer rather than real asset risk on the assets owned by the SPV. They can be listed and rated, though this is not necessary, depending on the target investor market.
Sukuks are typically issued by corporate issuers, some financial institutions and by Governments. See Islamic Finance.
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