Halal Industry

The role of sukuk in financing the halal food industry

The volume of sukuk from food and beverage companies is historically low, especially relative to the size and frequency of issues of corporate bonds by leading multinational food and beverage companies, and considering the strong purpose that sukuk serves in helping halal companies expand their asset base. What are the opportunities for halal food companies to raise capital via sukuk?

You are a halal food chain exploring the possibility of raising funds through sukuk

What opportunities are there for halal food restaurants and chains to issue sukuk?

How large is the conventional corporate bond issuance market, and how prevalent are bonds among conventional food and beverage comapnies?
How do sukuk differ from conventional bonds?
What opportunities are there to issue sukuk for halal food companies?


Conventional corporate bonds are fixed income debt securities issued by corporations to investors. Corporations requiring financing borrow funds from investors, and repay the loan at a variable or fixed interest rate in installments and as a lump sum at a future date. $3.3 trillion of corporate bonds (pdf) were issued globally in 2015—down 6 percent from $3.5 trillion in 2014. 88 percent, equivalent to $2.9 trillion, were investment grade (those with little risk of default), with high-yield bonds (those with a higher risk of default) comprising the remaining 12 percent.


PepsiCo Inc

U.S.-based snack maker

Sold $2.5 billion of corporate bonds in 2015, followed by a $3.25 billion sale of five tranches used to pay off existing debt in the same year. The longest tenure of the $3.25 billion sale was $500 million of 4.6 percent bonds due in 30 years, while the largest was $800 million of 31 percent bonds due in seven years.

Whole Foods Market

U.S.-based natural and organic supermarket chain

Issued a $1 billion bond of 5.2 percent notes in 2015 due December 2025. The bond will be used for “working capital and general corporate purposes”, according to the company, as well as the repayment of debts. The announcement of the bond followed the release of quarterly earnings that were below expectations.


London chain of fast-food Mexican restaurants

In 2014, Chilango raised 2.16 million British pounds from 749 investors on Crowdcube, at 8 percent return over 4 years. A year later it closed an equity crowdfunding round of 3,433,010 British pounds also on Crowdcube. With a term of 4 years, the mini-bond offered investors an 8 percent return.


Due to their interest-bearing nature, conventional corporate bonds are not Shariah-compliant. Instead of interest-bearing debt obligations for investors, sukuk represent shares of ownership in a tangible, underlying asset. They take on different structures depending on the nature of the assets they are financing; wakalah and murabahah are the most preferred structures, followed by ijarah, mudarabah, musharakah, hybrid, and others.

Sukuk is often referred to as a fixed income instrument (likened to conventional bonds) but there have been cases when the instrument can be quasi-fixed, such as exchangeable sukuk, or other unique structures such as contingent convertible (CoCo) sukuk, SRI sukuk, or some other type of hybrid structure.

The sukuk market only started gaining rapid momentum in the 2000s after the first issue in 1990. In 2001 the market was valued at just over $1 billion, growing to $139.2 billion in 2012, according to Thomson Reuters data. Issuances dropped significantly to $101.8 billion in 2014 and $66 billion in 2015, the latter largely attributed to cessation of short-term sukuk issuance by Bank Negara Malaysia.

In 2016, the sukuk market continued to struggle as a number of issuers shifted to bonds in search of liquidity. As of July 2016, sukuk issuances stood at $38.7 billion, just under the $40.9 billion in the same period in 2015. 

Corporate sukuk is a fraction of the overall market, which is dominated by sovereign and quasi-sovereign papers.

According to Thomson Reuters data, corporate sukuk made up 30 percent of all issuances as at the third quarter of 2015. Financial services were the biggest issuers, followed by the transport sector, construction, and oil and gas.

The F&B sector made up less than 1 percent of all sukuk issued up to Q3 2015.

2010 2011 2012 2013 2014
21% 14% 18% 28% 23%
Source: Thomson Reuters data



Corporate F&B sukuk is not a norm.

The only sukuk from the F&B sector in 2015 was the $426.8 million sale from Saudi Arabia’s Almarai.  

Almarai’s sukuk was issued to finance part of its 21 billion Saudi riyal capital investment program and its funding diversification. With a tenor of 7 years, the company’s September 2015 sukuk will invest 51 percent of its proceeds through an equity-based mudarabah structure in its business activities, while the other 49 percent are to be invested through a murabahah agreement. Lead managers and bookrunners of the sukuk included BNP Paribas Investment Company KSA, HSBC Saudi Arabia, Saudi Fransi Capital and Standard Chartered Capital Saudi Arabia.

Almarai is a familiar corporate sukuk issuer – the Gulf’s largest dairy firm went to market in 2012 with a 1 billion Saudi riyal issue, followed by a 1.3 billion riyal sale in 2013, both part of its 2.3 billion riyal sukuk program.

Fellow Saudi corporate Savola, an investment holding group in the food and retail sectors across the Middle East, North Africa and Turkey, issued its debut sukuk in 2013. It was a privately-placed 1 billion riyal ($400 million) sale that was the first tranche of its 5 billion riyal program.

Elsewhere, the United Kingdom-based Euro Quality Lambs is considering issuing sukuk to fund the building of its new integrated halal facility for slaughter, cutting, and value-added production. Discussing the company’s plans, Rizvan Khalid told Salaam Gateway, “The concept is for the site to become a showcase for religiously-slaughtered products for the whole of Europe whilst also incorporating food trends of social, environmental, and economic sustainability. We will be looking to issue corporate sukuk totalling between 10 and 20 million British pounds (between $15 million and $30 million) as our plans develop.”


Almarai’s 2015 sukuk was undersubscribed, with the company initially intending to achieve an issuance amount of $530 million. Moreover, the sukuk was the sole substantial F&B sector sukuk in 2015. Why this underwhelming performance in the F&B sector?

Sulaiman Moolla, an Islamic finance specialist and sukuk expert at Qatar’s Barwa Bank, believes this is down to a less mature market. “I think the important thing to note is that when markets mature, they give access to different types of opportunities. In the F&B space, there aren't many companies that prefer Islamic finance. Therefore the Islamic issuance space is relatively smaller than, for example, the issuance market for companies such as Pepsi or Coca Cola that regularly issue [bonds].”

As halal food companies expand and as corporates increasingly gain familiarity with sukuk, there is considerable opportunity to raise sukuk to finance capital expenditures and asset acquisition. This will also require sukuk arrangers to reach out to corporates to raise their awareness of their financing and funding options.

Crowdfunded ‘mini retail corporate sukuk’?

There is also the potential to make sukuk more accessible to smaller companies via crowdfunding platforms. This is, to date, an unexplored option and is rife with challenges, chief of which is the fact that crowdfunding is largely unregulated, especially in key Islamic economies. Malaysia last week became the first Southeast Asian nation to license crowdfunding platforms; one of the six licensed is Shariah-compliant Ethis Kapital, which targets SMEs.

With the increasing use of retail sukuk by sovereigns, first in Indonesia in 2009, followed by Malaysia, Pakistan, and Bahrain, on paper there is the potential to extend ‘mini retail corporate sukuk’ to Islamic crowdfunding sites. This could create efficient investment platforms that allow multiple investors to acquire an ownership stake in individual assets of halal F&B firms.

Again, this will require extensive education and awareness for the markets, as well as regulatory oversight to protect all counterparties: crowdfunding platform, issuer, and investor.


Partner with the right name and experience: Sukuk can be complicated at times, and it will therefore be crucial to obtain the right experience and reputation to structure and go-to-market a sukuk that delivers for your company as quickly and painlessly as possible. In this respect, experienced lead arrangers and bookrunners will be pivotal for your sukuk, considering especially your required currency and geographical reach

Understand which sukuk structure is most appropriate for your company: Some sukuk structures may be more suitable for your investment than others

Don’t be afraid to innovate: Sukuk can be structured in a myriad of ways—a hybrid structure that incorporates different elements can better satisfy both your funding needs and those of your investors.

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Fixed income
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Usama Al-Za’tari, DinarStandard