PH launches Sukuk bond offering

The Bureau of the Treasury (BTr) on Monday launched its first-ever offering of Sukuk bonds as it mandated banks for the sale of “benchmark-sized” 5.5-year papers, a document showed.

The Sukuk bonds will be dollar-denominated and will be a “benchmark-sized” issue of at least $500 million with a tenor of 5.5 years.

The government named Citigroup, Inc., Deutsche Bank, Dubai Islamic Bank, HSBC, MUFG, and Standard Chartered Bank as joint bookrunners and joint lead managers. The banks were also mandated to arrange a series of fixed-income investor calls in Asia, Europe, Middle East and the United States starting Monday.

“This will potentially be the Republic’s maiden Sukuk issue after conducting a Philippine economic briefing in Dubai last September, with a target of diversifying the investor base towards Middle Eastern and Islamic countries,” the document read.

In July, Finance Secretary Benjamin E. Diokno said the government was eyeing to raise $1 billion from the sale of Sukuk bonds.

The BTr said the certificates will be issued by Republic of the Philippines (ROP) Sukuk Trust, a special purpose trust formed under Philippine law and administered by the Land Bank of the Philippines – Trust Banking Group.

“The certificates are expected to be rated ‘Baa2’ by Moody’s, ‘BBB+’ by S&P, and ‘BBB’ by Fitch,” it said.

Sukuk or Islamic bonds are certificates that represent a proportional undivided ownership right in tangible assets, or pool of tangible assets and other types of assets. These assets could be in a specific project or investment activity that is Shari’ah-compliant.

Unlike usual bonds, Sukuk bond issuances must adhere to Shari’ah principles and must be structured to prohibit elements like interest (riba), uncertainty (gharar), and investments in businesses that deal with prohibited goods or services (haram).

Sought for comment, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the returns for the Sukuk bonds could match the rate for the benchmark US dollar-denominated bonds in the secondary market.

“Since this is new/debut issuance there could be some market excitement that would lead to higher bids/demand,” he said in a Viber message.

“Investor returns should be similar or better to be higher than comparable benchmark bonds and other alternative investments in the financial markets to attract more investor interest/demand,” he added.

A 2023 report from the Islamic Financial Services Board showed Sukuk dominated the Islamic capital market segment in 2022, accounting for 25.6% ($829.7 billion) of the $3.2-trillion global Islamic financial services industry last year.

This year, the Philippine government’s borrowing plan is set at P2.207 trillion, consisting of P1.654 trillion from domestic sources and P553.5 billion from foreign sources. — A.M.C. Sy