PHL may venture into sukuk bonds
WITH a large funding needed for the country’s massive infrastructure drive, Moody’s Investors Service said the Philippines might potentially venture into sukuk issuance, especially after passing an Islamic finance and banking law.
The Bangko Sentral ng Pilipinas (BSP) signed Circulars 1069 and 1070—which cover the establishment of Islamic banks and the approval of the Shariah Governance Framework—before 2019 ended to ensure compliance to banking requirements.
Republic Act 11439 or “An Act Providing for the Regulation and
Organization of Islamic Banks” was signed into law in August last year, which BSP welcomed as this could boost Islamic financing and inclusive growth.
“This potentially paves the way for the government’s first foray into the sukuk market against a backdrop of higher funding needs due to its aggressive infrastructure development program,” Moody’s said in a report on Thursday.
Sukuk is an Islamic financial instrument that complies with Islamic religious law. Proceeds from the issuance of sukuk are allocated for asset acquisition, which each investor holds partial ownership.
The ambitious Build, Build, Build program of the government is aimed at improving the country’s infrastructure and connectivity while boosting the construction industry with higher spending and more job opportunities. The Philippines recently secured at least $3.3 billion in loans from the Asian Development Bank, half of which will be used to finance the program.
BSP Governor Benjamin Diokno recently said that three conventional banks expressed interest in establishing Islamic banking units. While the Central Bank did not provide names, it noted that these were two local banks and one foreign bank.
The potential market for Islamic financial instruments is seen
to be dominated by Muslims, who comprise 10 percent of the country’s population.
Moody’s added that the BSP’S initiatives toward Islamic banking and financing could “widen access to financial services to the country’s Muslim minority population.”
GLOBALLY, Moody’s is seeing a “modest” growth in terms of longterm sovereign sukuk issuance this year due to higher financing requirements.
“Greater borrowing needs reflect the impact of the recent plunge in oil prices, amid the global economic downturn resulting from the coronavirus outbreak,” Moody’s said.
Sukuk issuance might rise to $75 billion in 2020 from $71 billion last year, Moody’s Senior Vice President Christian de Guzman said. “We expect that wider fiscal deficits, larger scheduled repayments and a deepening of domestic Islamic financial markets will lead to higher sukuk issuance over the coming years,” he added.
Bulk of the sukuk issuance this year is expected to come from Saudi Arabia, Qatar, Malaysia, Indonesia and Turkey.
However, Moody’s said that long-term sukuk issuance might slump to $70 billion in 2021 because of lower financing needs following the expected surge this year.
DESPITE a government order for people, especially the old ones, to stay home during the enhanced community quarantine, a woman is seen on Thursday on Edsa with her wheelchair.