Hybrid sukuk is among the favorable emerging types of sukuk in the Islamic capital market worldwide. It is viewed as one of the innovative products in the Islamic capital market compared to plain vanilla sukuk structures that were basic and standard, which did not add value such as options to exchange or convert into equity at a specified time.
The term hybrid itself usually refers to something that is composed of two or more widely differing elements. Hybrid sukuk, in this regard, can be defined as a kind of security that:
» combines some elements of equity and debt;
» the underlying assets consist of tangible assets (‘ayn) and intangible assets (dayn);
» combines Shari‘ah contracts in the structuring process.
Nevertheless, in modern financial terms, a hybrid instrument usually refers to a security containing two elements, i.e. equity and debt, which could be described as either a bond with equity features or a share with debt characteristics. Hence, a hybrid instrument can be converted or exchanged into equity.
