Process of SUKUK for REITS
PURCHASE OF LAND
The Real Estate Developer (RED) will purchase the land for the Real Estate Project (REP)
BRING FURTHER CAPITAL
The RED will bring further cash capital to abide by the Central Bank requirements regarding Debt Equity Ratio for the REP
RED will make a marketing plan to the potential investors to the REP
MORTGAGE OF LAND
RED will create first mortgage over land in favor of the potential Sukuk holders and will mark lien on its cash capital in favor of the Sukuk holders
ESTABLISHMENT OF SPV
RED will establish An independent Special Purpose Vehicle (SPV) with a nominal capital without having any equity stake in this SPV.
ROLE OF SPV
This SPV will perform the role of an agent of Sukuk holders to make payment to RED, collected from Sukuk holders towards subscription of Sukuk. SPV will also make periodic payments to Sukuk holders against redemption amount of Sukuk subscription plus profit of the Sukuk holders.
APPOINTMENT OF TRUSTEE
RED will also arrange a highly credible entity to act as Trustee to execute and hold all contracts on behalf of Sukuk holders with RED. The Trustee will be empowered to suit a file against RED in case a dispute arises between the Sukuk holders and RED.
INVITATION OF SUBSCRIPTION
RED will invite subscription from the Sukuk holders in eight semi annual trenches to incur cost of construction of the REP. Each trench will be utilized to construct a specific portion of the REP.
CONTRACTULA RELATIONSHIP B/W RED AND SUKUK HOLDERS
This subscription will be based on the contractual relationship in between the RED and the Sukuk holders as partners (Shareek). As a partner (shareek) RED will be responsible to spend the money subscribed by Sukuk holders(the other partner/Shareek) according to the construction plan agreed between the RED and the Sukuk holders.
CERTIFICATION BY ENGINEER
On each 180th day from the date of each trench , subscribed by the Sukuk holders an independent architect/civil engineer will certify the value of construction work done by the RED.
SUKUK HOLDERS SELL THEIR EQUITY TO REP
On the basis of this certified value Sukuk holders will sell their equity share in the REP in favor of RED. RED will pay the consideration of equity share to Sukuk holders from the receipt of money paid by the potential buyers of the REP.
PAYMENT OF PROFIT TO SUKUK HOLDERS
To make sure that the profit is paid to Sukuk holders as per pre-agreed profit rate (linked with known bench mark like LIBOR) the offer and acceptance between the RED and Sukuk holders will be made on the same day on which the payment of profit will be made by the RED to the Sukuk holders.
In this offer and acceptance, Sukuk holders will make offer to sell their equity share to RED at the value representative of principal amount plus pre-agreed profit of the Sukuk holders. This in accordance with Shariah rulings which allow sale of equity share from one or more partners(shareek) in favor on one or more than one partners (shareek) at a price equivalent either at the market value or at any price which may be agreed in between the seller of equity share and the buyer of equity share.
The Trustee will execute following agreements with RED
- Capital Project Financing agreement
- Diminishing Musharakah agreement
Further, RED will also execute a unilateral promise to purchase the Musharakah units according to a pre-agreed schedule.