The Construct of Sukuk, Rating and Default Risk

This paper discusses the underlying principles of Sukuk. The ultimate objective of the study is to provide an understanding on the fundamental idea of Sukuk, its rating and its implication to default risk. Sources of data include observation, documents and texts, specifically from Securities Commission Malaysia (SC), Rating Agency Malaysia (RAM) and Malaysian Rating Corporation Berhad (MARC), Standard & Poor's report, and authors’ analysis on the subject matter. Despite showing consistent growth of issuance across countries, Sukuk may also promote default risk as Sukuk also needs to undergo a credit rating assessment of its future payment prospects. Even though Sukuk issuance comes together with asset security, however any negative migration of the credit rating assessment would indicate default risk.