The Impact of Sukuk Structures on Sukuk Ratings and Yields

Abstract

Sukuk has been developed into a global asset class, supporting development with the participation of a wide range of issuers and investors irrespective of demographic continents. Sukuk structuring is not only related to regulations imposed by the regulators but also has high consideration on rating and yield performance. This study aims to examine the effect of the Sukuk structures on Sukuk rating and yield in Bursa Malaysia (Malaysian Stock Exchange) listed companies during the term of 2008–2013. This study uses the ordinal logit regression model (OLRM) to investigate the effect of Sukuk structures on the rating, and the ordinary least-square (OLS) to investigate the effect of Sukuk structures on the yield. The result demonstrates two opposite directions after controlling for firm characteristics. While Sukuk rating is negatively related to Sukuk structures, Sukuk yield shows a positive direction with Sukuk structures. This study evidently shows that the selection of Sukuk structure is among the important factors for Sukuk yield performance, in addition to fulfilling the regulatory requirements on Sukuk structuring. The selection of the best structure can achieve the issuance and investment objectives. This study was limited to the study of the relationship between Sukuk structure on Sukuk ratings and yield using the aggregate data of Malaysian public listed companies that issued Sukuk during the period of 2008 to 2013. The study provides new insights into the issue of how the Sukuk structure influences the Sukuk rating and yield. The findings of this study contribute to the existing literature on the determinants of Sukuk ratings and yields.