Risk Management in
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A.2.4.3 Capital Contribution
In the sukuk issued by KLSSB, investors contribute the capital required of up to RM720 million
in cash, and KLSSB provide a form of land valued at RM 254 million.
A.2.4.4 Purchase Undertaking (PU)
According to studies of the KLSSB sukuk, it is found that there is a PU feature. KLSSB uses its
portion of the Distributable profit and/or proceeds of its advances to the Musharakah Venture
to purchase the sukukholders’ share in the Musharakah Venture in accordance with a pre-
agreed 6 monthly schedule (each installment is payable by KLSSB and is referred to as a “Share
Installment”). Such obligation of KLSSB will be evidenced by a deed of undertaking to be
executed by KLSSB in favor of the Issuer and Trustee (“Purchase Undertaking”).
A.2.5 Cases on Sukuk Defaults
From 1997 to 2009, a total of 70 sukuk issued by 46 issuers have defaulted in Malaysia only
that accounted for RM12.9 billion (Abdullah et al, 2011). Wijnbergen and Zaheer (2013)
provide detailed accounts on four cases on sukuk defaults that are frequently cited in the
literature, namely: a) East Cameron Partners’ Sukuk Al-Musharakah, b) Musharakah Sukuk of
Investment Dar Company (TID), c) Golden Belt 1( Saad) Ijarah Sukuk and d) The Nahkeel
Sukuk provides a detailed list of sukuk defaults, their types and regulatory aspects. In this
segment, two prominent sukuk default cases are presented: 1) East Cameron Partners’ Sukuk
Al-Musharakah, and 2) The Nahkeel Sukuk.
A.2.5.1 East Cameron Partners’ Sukuk Al-Musharakah
East Cameron Partners’ Sukuk Al-Musharakah is the first sukuk issued by a company based in
the United States and rated by Standard & Poor’s as having a CCC+ rating. In July 2006, East
Cameron Partners (ECP) issued a sukuk worth USD165.67 million with a maturity period of 13
years.
A.2.5.1.1 Purpose of Sukuk Issuance
ECP was incorporated in Houston, Texas as a private oil and gas exploration company in 2002.
Later, the company acquired leasehold interests in oil and gas production in federal oil and gas
leases administered by Minerals and Management Services (MMS) of the US Department of
Interior (Boustany, 2006).
The objective of the originator was not shariah compliant financing, rather the issuer, ECP,
simply understood the sukuk structure to be an affordable and flexible financing tool to raise
the funds.