Subscription to Al Rajhi Bank’s Shariah-compliant sukuk allowed: Professor

Sheikh Saad Bin Turki Al Khathlan, Professor at the Faculty of Shariah, Imam Muhammad bin Saud Islamic University, said subscription to Al Rajhi Bank’s sukuk is allowed, as sukuk are compliant with Shariah and approved by the bank’s Shariah Board.

Sukuk are based on speculation between sukuk holders and the bank. Sukuk holders generate a 90% return, compared to 10% for the bank. The fixed return rate set at 5.5% in the announcement is the periodical distribution, not the real return, which is variable.

If the return percentage exceeds 5.5%, it will be deposited in a reserve account to compensate for any shortage, if any, going forward, Al Khathlan elaborated, noting that the bank will not benefit from it. If the return is less than 5.5%, the bank will make an unbinding promise to fulfill that shortage.

Al Rajhi Bank launched on Oct. 30 the first tranche of SAR-denominated Tier 1 sukuk for individual and institutional investors. The offering will run until Nov. 10, Argaam earlier reported.

The issuance amount was initially set at SAR 4 billion.