Sukuk Issuance and a Divided Shariah Committee
Al-Barakah Healthcare Berhad, a listed hospital operator, plans an RM500 million Sukuk Wakalah to refinance debt. The Shariah committee has three members: Dr Ahmad (chair), Ustazah Nur, and Dr Tan. Dr Ahmad is also a paid consultant to the arranger bank; Ustazah Nur's brother-in-law is Al-Barakah's CFO; Dr Tan is an academic with no other links. The structure includes a purchase undertaking from Al-Barakah to buy the sukuk assets at face value on maturity or default, and a penalty clause payable to a charity if Al-Barakah delays payment. The committee approved the structure 2-1; Dr Tan dissented, arguing the purchase undertaking effectively guarantees principal and should be at market value. His dissent is recorded only as 'noted' in the minutes. The board wants to start bookbuilding in five days. A minority shareholder has written to the board asking how it can assure investors the sukuk is Shariah-compliant. The arranger says changing the structure now will delay the issuance by six weeks and may raise the coupon.
1. Assess the Shariah governance weaknesses in this transaction and recommend how the board should address them before bookbuilding.
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The Shariah committee's independence is compromised. Dr Ahmad is a paid consultant to the arranger - a direct commercial conflict; Ustazah Nur's brother-in-law is the CFO - a close family conflict. Both should disclose the conflicts and recuse from this transaction. The committee should either co-opt independent members or obtain a fresh opinion from a qualified Shariah adviser with no links to the parties. The minutes are also deficient: recording Dr Tan's dissent only as 'noted' fails to capture the reasoning and the basis for the majority view. The board should require a full written Shariah pronouncement that addresses the purchase undertaking, the penalty clause, and the asset structure. Before bookbuilding, the board should satisfy itself that the structure is Shariah-compliant, not merely that a 2-1 vote was obtained. If the dissent raises a material unresolved issue, the board should not proceed until it is resolved. This is a governance issue, not just a religious label.
2. Dr Tan's dissent concerns the purchase undertaking. How should the board weigh commercial delay against Shariah compliance, and what should it disclose to investors?
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Shariah compliance is a condition of the product, not a marketing add-on. If Dr Tan's concern - that the purchase undertaking at face value effectively guarantees principal - is unresolved, the board cannot responsibly label the sukuk Shariah-compliant. A six-week delay and a higher coupon are commercial costs; issuing a non-compliant instrument is a legal, reputational, and investor-confidence cost that is likely larger. The board should ask the Shariah committee to reconsider with full reasoning, obtain a second independent opinion, and consider restructuring the undertaking, for example at market value or through a different structure. If the structure changes, disclose it clearly in the sukuk documentation and prospectus, including risk factors and the Shariah basis. The board should also disclose the governance process: conflicts managed, dissent considered, and ongoing compliance review. Transparency is the best assurance.
3. The minority shareholder asks how the board can assure investors. Draft the key points the board should communicate.
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Key points: (1) The board has appointed an independent Shariah committee and will ensure conflicted members do not decide this transaction. (2) A full written Shariah pronouncement will be published, including the treatment of the purchase undertaking and penalty clause. (3) The board will obtain an independent second opinion if a material dissent remains. (4) The sukuk documentation will disclose the structure, risks, and Shariah basis in plain language. (5) Ongoing compliance will be reviewed annually and material changes will require Shariah approval. (6) The board acknowledges that Shariah compliance is a matter of judgement and will not overstate certainty. (7) Investors can raise concerns through the company secretary or the Shariah committee. The board should avoid saying 'guaranteed Shariah-compliant'; instead explain the process and its limits.