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Sykt Abdah, wants to raise RM 300 million for business expansion. It intends to raise...

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Accounting

Sykt Abdah, wants to raise RM 300 million for business expansion. It intends to raise the funds through the issuance of a 10 year sukuk Ijarah by pledging several of its office buildings. The sukuk will make annual Ijarah payments of 8%. At maturity Sykt Abdah will repurchase the pledged office buildings. The following additional information is provided.

- Total number of sukuk to be issued = 300,000

- Expected market value of buildings at maturity = RM 300 million.

a) Draw the structure of the sukuk. Number the flows chronologically.

b) Assuming your required return is 12%, what is the correct price of each sukuk?

c) From a risk viewpoint, how would this sukuk ijarah compare with that of an 8% conventional bond? What is the implication for required returns between the two instruments?

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