PH starts sale of Islamic-compliant sukuk bonds
At A Glance
- The Marcos administration has mandated banks to oversee the first Islamic bond sale to raise at least $500 million for government budget funding.<br>The national government is preparing to issue a dollar-denominated benchmark size Shariah-compliant sukuk with a tenor of 5.5 years.<br>Manila has mandated Citigroup, Deutsche Bank, Dubai Islamic Bank, HSBC, MUFG, and Standard Chartered Bank to coordinate a series of investor calls beginning on Monday, Nov. 27.<br>Sukuk bonds are structured according to Islamic principles, prohibiting the payment or receipt of interest, and instead provide investors with a share of profits generated by underlying assets or projects.<br>Sukuk represent ownership stakes in specific assets, ventures, or projects, and their returns are based on the performance of these assets rather than fixed interest payments.<br>Finance Secretary Benjamin Diokno aims to raise $1 billion from the first sukuk offering and attract institutional funds from the Middle East, with a minimum investment of $200,000 in sukuk bonds.
The Marcos administration has mandated banks to oversee the Philippines’ first Islamic bond sale, aiming to raise at least half a billion dollars to aid in funding the government's budget shortfall.
Based a document released by the Department of Finance (DOF), the national government is preparing to issue a dollar-denominated benchmark size Shariah-compliant sukuk with a tenor of 5.5 years.
A benchmark-size offering generally refers to at least $500 million.
Manila has mandated Citigroup, Deutsche Bank, Dubai Islamic Bank, HSBC, MUFG, and Standard Chartered Bank to coordinate a series of investor calls beginning on Monday, Nov. 27, the DOF document showed.
Sukuk bonds are similar to traditional bonds, but they are structured according to Islamic principles, which prohibit the payment or receipt of interest, known as riba.
Instead of earning interest, sukuk investors will receive a share of profits generated by the underlying assets or projects.
“Sukuk represent ownership stakes in specific assets, ventures, or projects, and the returns are based on the performance of these assets rather than fixed interest payments,” an analyst explained.
Last September, Finance Secretary Benjamin Diokno said the government was looking at raising $1 billion from the first sukuk offering.
He also said Manila aims to attract institutional funds from the Middle East, which would be allowed to buy at least $200,000 worth of sukuk bonds.
Michael Ricafort, Rizal Commercial Banking Corp. (RCBC) chief economist said the new bond issuance could create market excitement and lead to higher bids due to improved market conditions.
These include lower US sovereign bond yields and a favorable environment for both bond issuers and investors.
Ricafort said this situation would benefit borrowers with lower borrowing costs and provides investors with relatively higher bond yields.
The Philippines plans to borrow about 2.46 trillion from debt markets to support its P5.77 trillion budget for next year, with roughly a quarter of this amount coming from foreign creditors.
In addition to providing budgetary support, the sukuk issuance is also in line with the Bangko Sentral ng Pilipinas’ (BSP) objective to promote the growth of Islamic banking and finance in the country, in keeping with the aim of ensuring financial inclusion for all Filipinos.
“Islamic banking and finance serves everyone — granting Muslims much-needed access to financial services and providing non-Muslims with alternative banking and finance options,” BSP said.
By imposing uniform regulations for both conventional and Islamic banks, and introducing additional guidelines tailored to the distinctive aspects of Islamic banking, the BSP created a fair environment that empowers Islamic banks to prosper and cater to the needs of all Filipinos.