Lack of rules delays ‘sukuk’ bonds issuance

THE PHILIPPINES’ first “sukuk” bond issuance may have to wait a while despite recent pronouncements from both the private and the public sectors of plans to tap Muslim investors.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said rules did not exist yet to allow firms or government agencies to issue debt instruments that comply with Islamic shariah laws.

“We have not provided any authority for the issuance of sukuk bonds,” Tetangco said in a recent email. “The BSP has not yet issued the policy on the issuance of sukuk bonds.”

Last month, state-run National Home Mortgage Finance Corp. (NHMFC) said it planned to issue P2 billion in Islamic bonds in behalf of a Mindanao-based firm.

NHMFC would tap government banks Land Bank of the Philippines and Development Bank of the Philippines as underwriters for the debt issuance.

The firm said the mortgage-backed securities would securitize Paglas Corp.’s socialized housing project in Datu Paglas, Maguindanao. Paglas’ banana plantations would serve as the asset to back the bond issuance.

Meanwhile, last March, First Metro Investments Corp. (FMIC), the country’s leading investment bank, said it had plans for a such issuance in partnership with Malaysia’s CIMB Bank.

The two banks wanted to issue about $200 million in sukuk bonds, with the approval of the BSP, the finance department and the treasury bureau.

Among the issues that still need to be addressed before any such issuance takes place include the formation of rules on how investors are paid and how those earnings are taxed.

Islamic shariah rules prohibit Muslims from earning interest from loans. Instead, sukuk bonds are backed by assets with recurring sources of revenue.

The country only has one Islamic bank, Al-Amanah Investment Bank, which was established in 1973. The bank is currently owned by the state-run Development Bank of the Philippines (DBP).

The prevailing General Banking Law passed in 2000 prohibits the creation of any other Islamic bank in the country—a limitation the BSP wants to address, first through amendments to the central bank’s charter and, eventually, with the passing of a new law focusing only on Islamic finance.