Philippines Launches Sukuk Bond Offering

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The Bureau of the Treasury (BTr) initiated its inaugural offering of Sukuk bonds on Monday, engaging banks for the sale of “benchmark-sized” 5.5-year papers. The Sukuk bonds, set to be dollar-denominated, will represent a “benchmark-sized” issuance, with a minimum of $500 million and a tenor of 5.5 years. Joint bookrunners and joint lead managers for the offering include Citigroup, Inc., Deutsche Bank, Dubai Islamic Bank, HSBC, MUFG, and Standard Chartered Bank. The move marks the Republic’s potential debut Sukuk issue, aligning with the aim of diversifying the investor base toward the Middle East and Islamic countries.

Following a Philippine economic briefing in Dubai last September, where Finance Secretary Benjamin E. Diokno mentioned a target of raising $1 billion from Sukuk bond sales, the BTr is advancing with the issuance. The certificates will be facilitated by the Republic of the Philippines (ROP) Sukuk Trust, administered by the Land Bank of the Philippines – Trust Banking Group. The anticipated credit ratings for the Sukuk certificates are ‘Baa2’ by Moody’s, ‘BBB+’ by S&P, and ‘BBB’ by Fitch.

Sukuk, or Islamic bonds, differ from conventional bonds, adhering to Shari’ah principles and prohibiting elements such as interest (riba), uncertainty (gharar), and investments in businesses involving prohibited goods or services (haram). Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort commented that returns for Sukuk bonds might align with the rate for benchmark US dollar-denominated bonds in the secondary market. As a new issuance, market excitement could lead to higher bids and demand, making investor returns competitive or even superior to comparable benchmark bonds.

The move towards Sukuk aligns with broader trends in the Islamic capital market, where Sukuk dominated in 2022, constituting 25.6% ($829.7 billion) of the $3.2-trillion global Islamic financial services industry. As part of its 2023 borrowing plan, the Philippine government aims to raise P2.207 trillion, with P1.654 trillion from domestic sources and P553.5 billion from foreign sources. The issuance of Sukuk bonds presents an innovative financing avenue for the government, reflecting a strategic diversification of funding sources.