The recent notification by Kuwait’s International Investment Group (IIG) KSCC that it was not in a position to make the periodic payments due on July 12, 2010 on its $200 million exchangeable Sukuk (Islamic bond) issued in 2007 and which matures in 2010, once again turns the spotlight on the troubled market.
This is the second time IIG has defaulted in meeting its obligations to its sukuk certificate holders. It is tough to see a scenario in Western finance in which consecutive defaults on debt payments would be treated in such a cavalier fashion.
Despite the defaults and the non-payment notice, IIG maintains that it and its businesses are continuing to trade on a normal basis and the day to day operations of such businesses have not been effected by the non-payment notice. Such news would certainly make investors literally see red!
In April this year, another Kuwaiti Islamic investment firm, The Investment Dar (TID), confirmed it had defaulted on a $100 million sukuk when it failed to pay a periodic distribution due on April 27 to holders of an issue maturing in 2010.
The article linked below attempts to deflect blame toward “financial and capital market regulators in Kuwait.”
But this is an obvious cop-out since sukuk defaults have also occurred in Dubai, Saudi Arabia, Pakistan and elsewhere.
Perhaps regulators should start an investigation looking into the lack of disclosure and transparency in sukuk offerings and the exceptionally high fees and costs associated with sukuk to get around not charging interest…