Practical Law Glossary Item 3-501-1068 (Approx. 3 pages)
Glossary
Sukuk al-istisna'a
Also known as istisna'a sukuk. A form of sukuk derived from the istisna'a lease financing structure. In a sukuk al-istisna'a transaction:
The entity (originator) seeking asset financing enters into an agreement with a special purpose vehicle (SPV) under which the originator agrees to manufacture or construct an asset for delivery to the SPV at a later date and the SPV agrees to pay the construction or manufacturing cost of the asset in installments as certain milestones are achieved.
The SPV finances the purchase of these assets with the proceeds of a sukuk issuance.
The SPV holds the assets in trust for the sukuk holders who each own a proportionate interest in the assets in accordance with the value of their investment.
Once the asset is constructed, the SPV enters into an agreement with the originator to lease the asset to the originator.
The SPV uses the rental payments to make payments to the sukuk holders.