A category of sukuk that belong to the class of tier-1 equity and are not convertible into the underlying (real) assets (non-convertible sukuk). T1 (tier-1) equity constitutes a category of equity (of an entity, e.g., an Islamic financial institution, IFI) that represents subordinated claims on an entity’s assets (residual interest) that are perpetual in nature, and not callable by the issuer (the issuing entity), except in certain cases where an entity may have a discretionary buy-back arrangement under certain regulations).

Non-convertibility implies that the sukuk certificates extend no option to the sukuk holders to convert the sukuk into the underlying real assets. Such an option, constituting the right, without the obligation, to convert the sukuk, is embedded in convertible sukuk. The non-convertible sukuk can only be liquidated at the defined maturity date, or at an early liquidation date for one reason or another leading to default on payment of profit.

Tier-1 sukuk is part of the core measure of an entity’s financial strength from a regulatory perspectives. Tier-1 equity is, in turn, part of core capital, which mainly consists of common stock and disclosed reserves, but may also include non-redeemable non-cumulative preferred stock.