Thursday, May 23, 2024
Editor's PickFusang completes Sukuk tokenization PoC

Fusang completes Sukuk tokenization PoC

Malaysia-based Fusang Exchange has detokenized its first listed digital sovereign-linked Sukuk, completing a proof-of-concept (PoC) which could pave the way for greater enhancement to the tokenization of institutional Sukuk.

The Sukuk in question was one issued by the International Islamic Liquidity Management Corporation (IILM), a global institution backed by central banks and a multilateral organization to enhance cross-border investment flows through the issuance of short-term high-quality Sukuk.

Tokenized and listed on the 30th October, the exercise was led by Fusang using its proprietary Fusang Depository Receipt (FDR) structure to ‘wrap’ the underlying Islamic note into a digital form.

The FDR complies with AAOIFI Shariah standards, with ZICO Shariah Advisory Services acting as the Shariah adviser on the offering.

Structured similarly to American Depository Receipts and Hong Kong Depository Receipts, FDRs represent a beneficial interest in an underlying security, which can be listed, traded and settled on Fusang Exchange.  They are fully redeemable for the underlying IILM Sukuk and are secured by third-party independent custodians.

The listing of the IILM’s ERC-20 tokenized offering solves several legacy issues, according to Fusang President Kelvin Ung, namely opening up institutional market.

“We will continue to issue similar tokenized securities backed by government-linked assets, as we believe demand for high-quality liquid assets will continue in the current high interest rate environment,” Kelvin said.

IFN Fintech understands that the tranche was completed on the 7th November. “We basically detokenized the Sukuk and credited the yield to the clients’ accounts,” a spokesperson explained. The listing (and subsequent detokenization) amounts to a PoC for a digital form of equity within the Islamic space.

Regulated by offshore financial center Labuan Financial Services Authority (Labuan FSA) since 2019, Fusang Exchange is a member-only network of regulated financial institutions facilitating the primary issuance and secondary trading of security tokens, cryptocurrencies and fiat currencies, with a sole focus on digital assets.

This IILM tokenization exercise was completed in compliance with Labuan FSA’s recently issued Guidelines on Labuan Securities Token Offering. It is worth noting that Labuan FSA has a strong Islamic finance focus, even introducing the Islamic Digital Asset Centre initiative in October last year.

“This issuance bodes well with the recent Budget 2024, providing full tax exemption on Islamic finance transactions by Labuan entities, aimed at positioning the jurisdiction as an Islamic finance hub,” commented Nik Mohamed Din Nik Musa, the director-general of Labuan FSA.

The Malaysian government unveiled new tax incentives in its Budget 2024 to support Labuan entities engaged in Shariah compliant finance activities including Islamic token issuers, Isalmic digital banking and Islamic digital exchange as well as Ummah-linked companies (those involved in Islamic social finance activities).

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