RECORDER REPORT

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) Tuesday issued Sukuk (Privately Placed) Regulations, 2017, making mandatory for the issuer who intends to issue Sukuk to appoint an investment agent and engage Shariah advisor.

The SECP issued SRO 836(I)/2017 here on Tuesday to notify Sukuk (Privately Placed) Regulations, 2017.

The issuance of Sukuk Regulations, 2015, notified through SRO 112(I)/2015, are hereby repealed.

Under the new regulations, “Sukuk” means an instrument of equal value representing undivided share in ownership of the identified tangible assets, usufruct and services or in the ownership of the assets of particular projects or special investment activity.

The repeal of the Sukuk Regulations, 2015 shall not affect any Sukuk issued under the said regulations and any rights, privileges, obligations or liabilities acquired, accrued or incurred under the said repealed Sukuk Regulations, 2015.

The new regulations shall apply to all issues of Sukuk privately placed by any company, special purpose vehicle or body corporate to the qualified institutional buyers.

These regulations shall not apply to an issue by any company, a special purpose vehicle or body corporate specifically setup by the federal government or any provincial government for the purposes of issue of Sukuk, under any other law.

An issuer that intends to issue Sukuk shall fulfill the following conditions: Prior to issuance of Sukuk, the issuer has appointed an investment agent and engaged Shariah advisor. In case of secured Sukuk, it has arranged appropriate security, in the form acceptable to the Investment Agent;

Provided that the said clause shall not apply to a Sovereign Sukuk and a government guaranteed Sukuk.

For the purposes of this regulation the expression “Sovereign Sukuk” shall include Sukuk issued and guaranteed by the federal government. For the purposes of this regulation the expression “Government Guaranteed Sukuk” shall include Sukuk issued by any corporation or body corporate owned and controlled by the federal government and such Sukuk is guaranteed by the federal government.

As per regulations, the issuer shall, before the issue of Sukuk, engage Shariah advisor and obtain in writing from it/him/her the Shariah Pronouncement. The Shariah Pronouncement must be signed by Shariah advisor ascertaining that the basis on which the Sukuk are structured is Shariah compliant.

The issuer shall before the offer of Sukuk appoint an investment agent. The appointment of investment agent shall be carried out through execution of an investment agency agreement which shall contain at least such clauses as notified by the Commission from time to time.

The investment agent shall endeavor that assets are transferred to Sukuk holders through a Special Purpose Vehicle (SPV) and in case the Sukuk is issued without establishment of SPV then Shariah advisor should give reasons referring to Shariah principles for allowing issuance of Sukuk without establishment of an SPV. The investment agent shall not be associated company or associated undertaking of the issuer.

The Shariah advisor providing the initial Shariah Pronouncement shall state in their Shariah Pronouncement, whether or not Shariah audit of the issued Sukuk is required. The compliance of features and Shariah requirements of Sukuk shall be audited on annual basis, where applicable. The issuer shall appoint its own statutory auditors or another firm of chartered accountants to perform Shariah audit. The Shariah audit report, where required shall made part of the annual financial report of the issuer.

The issuers of Sukuk shall, while preparing their financial reports, ensure that all the relevant standards, notified by the accounting and auditing organization of the Islamic financial institutions and the Islamic financial accounting standard as notified by the Commission for adoption, from time to time relating to the financial reporting and accounting treatment of Sukuk are complied with, the SECP added.