Philippines sukuk bonds get investment grade rating

MANILA, Philippines — The Philippines’ maiden offering of dollar-denominated Islamic or sukuk bonds has received investment grade rating from Fitch Ratings and Moody’s Investors Corp.

Fitch has assigned a BBB credit rating – a notch above minimum investment grade rating – to the Shari’ah-compliant trust certificate issuance maturing in 2029.

“The proposed sukuk’s rating is driven solely by the Philippines’ issuer default rating which we affirmed at BBB with a stable outlook. This reflects our view that a default of the senior unsecured obligations would reflect a default of the Philippines, in accordance with our rating definitions,” Fitch said.

According to Fitch, it has not considered any underlying assets or collateral provided when assigning the rating, as it believes the issuer’s ability to satisfy payments due on the proposed sukuk will ultimately depend on the government satisfying its unsecured payment obligations to the issuer.

Moody’s has assigned a backed senior unsecured rating of Baa2, a notch above minimum investment grade, to a proposed Sukuk Trust to be administered by state-run Land Bank of the Philippines.

Moody’s said the Baa2 issuer rating of the Philippines was characterized by high potential growth and moderate government debt compared with peers, although the pandemic had led to a weakening of its broader assessments for economic and fiscal strength.

At the same time, the Philippines has sustained strong access to domestic and international funding markets, a stable banking system and ample foreign-currency reserves to weather global capital flow volatility.

Moody’s explained that structural credit challenges include low per capita income and some constraints to the quality of institutions which stand in contrast to strong policy effectiveness, as well as highly negative exposure to physical climate risks.

Even as it emerges from the pandemic with a degree of economic scarring, Moody’s expects the recovery in real gross domestic product (GDP) growth to persist amid the deterioration in global credit conditions in the near-term and converge toward potential rates of around six percent per annum.

The Philippines aims to raise at least $500 million from the international debt market via the maiden issuance of 5.5-year sukuk bonds to further boost revenues.

The notice listed Citigroup, Deutsche Bank, Dubai Islamic Bank, HSBC, MUFG, and Standard Chartered Bank as joint lead managers and joint bookrunners for the issuance.

The sukuk offering is expected to be the last global bond sale for the Marcos administration this year. It is also part of the target $5-billion issuance programmed for 2023, of which the initial $3 billion via a triple-tranche global bond was already raised as early as January and another $1.26 billion via the first retail dollar bond issuance last month.

The Bangko Sentral ng Pilipinas earlier said the sukuk issuance is a good complement for the promotion of Islamic banking in the country.

“Having a sukuk will send a strong signal that the Philippines is now ready to accept applicants and new players in the Islamic banking system,” the BSP said.