What are the differences between Government-issued Sukuk and Corporate-issued Sukuk? Give seven differences

ANSWER

1. DEFINITION

Government issued sukuk are securities issued by a public entity or a national government (these are also called sovereign bonds). Governments use these loans to fund new initiatives or infrastructure, while for investors, they are a source of returns.

Companies may also issue bonds under certain conditions that are very similar to government issued sukuk . These are called corporate issued sukuk . In this case, however, investors lend money to private-sector companies that have decided to raise capital by issuing debt securities (i.e. bonds) rather than shares.

2.LIQUIDITY

A major difference is liquidity, which will be much lower for corporate issued sukuk , since the volumes of government issued sukuk issued are much higher.

3.MINIMUM INVESTMENT

Another difference is the minimum investment. In a government issued sukuk issue, the minimum investment may be €1,000, whereas for most corporate issued sukuk it would be at least €50,000.

4. TAX TREATMENT

Lastly, the tax treatment is different: the tax rate on corporate issued sukuk was increased to 20% in 2012 but remained at 12.5% for government issued sukuk .

5.SAFETY

Government issued sukuk are safer than corporate issued sukuk

6.RISK INVOLVED

Corporate issued sukuk are riskier than Government issued sukuk

7.COUPON RATE