Sukuk bond issuance eyed in 2025

MANILA, Philippines — Building on the success of its previous issuance in December 2023, the Philippine government plans to issue another Sukuk bond in 2025 as part of efforts to develop the Islamic finance market and attract Shariah-compliant investments.

On the sidelines of the Philippines Islamic Finance Roadshow, Bangko Sentral ng Pilipinas (BSP) Assistant Governor Arifa Ala said the central bank is in discussion with the Bureau of Treasury (BTr) regarding the planned Sukuk issuance.

“No amount yet, but in terms of timeline, Sukuk is part of (the BTr’s) planned issuance in 2025,” Ala said.

While the BSP and the BTr has yet to confirm whether the upcoming Sukuk will be peso-or dollar-denominated, Ala said she prefers peso Sukuk bonds as the issuance could support the growth of Islamic banking in the country.

“If there are Islamic banking windows who would like to invest in government securities, peso Sukuk can be a form of investment for them,” she said.

Asked if the government plans to issue Sukuk bonds yearly, Ala said the success of the government’s first Sukuk issuance in 2023, which garnered multiple awards, raises the possibility of making Sukuk a regular feature in the BTr’s funding program.

“I am not sure about the BTr’s plans, but since they issued one in 2023 and it was very successful, they might consider issuing Sukuk regularly,” she said.

The Philippines has raised $1 billion from the sale of 5.5-year Sukuk bonds in December 2023 amid high demand. The amount was twice the benchmark size of at least $500 million.

Sukuk, often referred to as Islamic bonds, are financial instruments that comply with Islamic law or Sha-ri’ah.

Unlike conventional bonds, which involve interest payments prohibited in Islamic finance, Sukuk provide returns to investors through profit-sharing or rental arrangements tied to underlying assets.

In addition to Sukuk, the BSP is also in talks with a number of potential investors who are interested in entering the Islamic banking market in the Philippines.

Ala disclosed that two more foreign institutions have expressed their intention in applying for an Islamic banking window.

“One already has some operations here, while the other does not yet have operations in the Philippines. Both are interested in Islamic banking windows,” Ala said, declining to provide further details.

BSP Governor Eli Remolona Jr. said there is vast potential and untapped growth in the country’s Islamic banking sector.

“Since the opening of the first islamic bank in the country, the BSP has aspired to integrate Islamic banking into the broader financial system. Significant progress has been made,” he said.

“But we have more work to do. We see Islamic finance as a driver of sustainable economic growth. Moving forward, the BSP and other stakeholders will continue to strengthen the ecosystem,” he added.