For years, sukuk have been structured and sold as Islamic bonds, but a high-profile default is renewing debate about whether they are in fact equity-like instruments that expose investors to greater risk.

As the sukuk market emerges from the shadow of the global credit slump, the $1 trillion (600 billion pound) industry is grappling with the extent to which sukuk should mirror conventional bonds, an issue which will determine holders’ returns and whether they will be first to be repaid if the investments sour.

How investors view sukuk could influence demand for the best-known shariah financing tool and the pace at which Islamic finance and $107 billion sukuk market will grow.

The question of a sukuk holders’ rights has come under scrutiny after an issuer, U.S. energy firm East Cameron, filed for bankruptcy in October 2008.

Read more from Reuters…

http://uk.reuters.com/article/idUKLNE5A401220091105?rpc=401

 

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