There is something about Sukuk (Islamic Bonds) which must make them more susceptible to default than conventional financing instruments. Since the outset of 2009, there have been no fewer than 34 defaults by Sukuk issuers. Keep in mind that this rash of defaults comes from an industry that touts itself as a form of “ethical investing” and claims to have been immune to economic and financial market downturns.
Perhaps the reason for the high default rate for Sukuk is the fact that there are high fees and costs embedded in their structure–high costs and fees which are often difficult to decipher and exist because of the need to replace interest payments in the first place.
Or perhaps there is an ethical problem in that sector of the business world which has resulted in the high default rate.
What ever the reason, another warning has been issued for yet another Sukuk, this time Borcos Shipping, Malaysia’s second-largest provider of offshore support vessels.
Borcos has had its Islamic medium-term notes placed on rating watch with a negative outlook by Malaysia’s leading rating service…