Islamic Preference Shares from Shariah Perspective: Case Study of Irredeemable Convertible Preference Shares (ICPS-i) Issued by TH Heavy Engineering Berhad (THHE)

Abstract

This study investigates the Shariah compliance of Islamic Preference Shares (IPS), with particular focus on the Irredeemable Convertible Islamic Preference Shares (ICPS-i) issued by TH Heavy Engineering (THHE) Berhad. The research aims to evaluate how IPS can be adapted within the mushārakah framework, examine divergent Shariah rulings, and assess their operationalisation and financial outcomes. The research adopts a qualitative design, combining doctrinal analysis of classical fiqh, contemporary resolutions of the IIFA-OIC, AAOIFI, and the SAC Malaysia, and statutory provisions under the Companies Act 2016. A comparative analysis highlights differing Shariah positions, while a case study of THHE’s ICPS-i explores practical implementation, drawing on prospectuses, SAC resolutions, and financial statements. The findings confirm that IPS can be framed as mushārakah instruments provided profits remain contingent on actual performance and no capital guarantees are embedded. While IIFA-OIC and AAOIFI categorically reject preference shares, SAC Malaysia adopts a more accommodative approach through mechanisms such as tanāzul (waiver of rights), conditional hibah, and recognition of the Board as wakīl. The THHE ICPS-i complied with SAC resolutions by ensuring profit-contingent dividends, market-based conversion, and liquidation priority via post-entitlement waiver. Financially, the instrument reduced gearing and stabilised the balance sheet but offered limited immediate returns as no dividends were declared during its tenure, underscoring the equity-like risks of IPS. This research contributes by bridging doctrinal Shariah debates and practical market application. It offers a comparative perspective on global and Malaysian rulings and provides empirical insights from the THHE ICPS-i, highlighting IPS as a hybrid financing tool that balances Shariah integrity with corporate needs.