Salam Sukuk
CA-8.3.5
The
credit risk in Salam Sukuk is similar to that of the underlying Salam contract, where thecredit risk exists upon the subscription of the Sukuk until the delivery and sale of the subject matter. The RW is based on the counterparty (Salam supplier) unless the Salam capital is guaranteed by a third party, in which case the RW is that of the guarantor if lower than that of the supplier.January 2015CA-8.3.6
The
market risk in Salam Sukuk (in the absence of a parallel Salam contract or other hedge) is likewise the same as that of the underlying contract, namely a long position in the underlying commodity. This risk can be measured according to either the maturity ladder approach or the simplified approach as set out in Section CA-5.6 (commodities and inventory risk).January 2015CA-8.3.7
A Salam Sukuk issuance which is structured with an undertaking from the issuer that the underlying commodity will be sold to a third party at a specified selling price (by means of a parallel Salam contract) must carry the RW of the buyer of that underlying commodity in the parallel Salam contract.
January 2015CA-8.3.8
For the type of Salam Sukuk described in Paragraph CA-8.3.7, there is no capital charge for
market risk that consists of basis and forward gap risks (namely, the risk that the hedge may be impaired because the underlying commodity delivered may be of inferior quality or may be delivered later than the contractual date) as the underlying commodity is normally traded on an exchange that eliminates the risk of late/non-delivery or delivery of a commodity of inferior quality.January 2015
