Philippines embarks on sukuk financing despite lack of regulation

By Arno MaierbruggerGulf Times Correspondent BangkokFinancing through sukuk is becoming an option to consider for Philippine companies and government entities. In the first move of its kind, the country’s largest property developer Ayala Land Inc said that it is planning to raise funds through sukuk financing for its recent investments in Malaysia.“We are talking with a couple of banks to explore sukuk financing,” said Jaime Ysmael, the company’s chief finance officer, adding that “we see if we can finance our investment in Malaysia with a ringgit-denominated finance structure.”Earlier this year, Ayala Land acquired a 9.16% stake in Malaysia’s property development company MCT Bhd through a private placement worth $43mn, Ayala Land’s first significant investment in Southeast Asia outside of the Philippines.Apart from Ayala Land’s considerations to tap the Islamic finance market, there are other entities in the Philippines preparing sukuk issues. State-owned Al-Amanah Islamic Bank, the first and only Islamic Bank in the Philippines, headquartered in Zamboanga City in Muslim-majority Mindanao island, recently said it may sell the nation’s first Shariah-compliant bond to finance development in Muslim Mindanao, one the poorest regions in the country.“There’s a lot of money in the sukuk market that we can tap,” Al-Amanah president Armando Samia said, adding that “we are still in the very exploratory stage. Getting the first one out is difficult.”One problem is that in the Philippines there is currently no regulatory framework for Islamic banking. While Al-Amanah Bank claims to be only bank in the Philippines with a mandate to sell Islamic notes, this is by no means carved-in stone.This because the Philippines’ state-run National Home Mortgage Finance Corp (NHMFC) is the next institution that plans to issue sukuk, namely a 2bn-peso Islamic bond on behalf of Mindanao-based land developer and agriculture company Paglas Corp. NHMFC president Felixberto Bustos Jr said that two government-run banks – Land Bank of the Philippines and Development Bank of the Philippines – will act as underwriters for the debt which is expected to be issued in the first quarter of next year. The sukuk, meant to fund a social housing project by Paglas Corp in Mindanao, is asset-backed by the company’s banana plantations.The Philippines government has become aware of the growing demand for Islamic financing, especially, but not only in Mindanao where people and companies so far had not many options to use Islamic finance services. Better regulation, as well as more Islamic banks and Shariah-compliant finance vehicles could give the region’s development a desperately needed boost. The Autonomous Region of Muslim Mindanao has per capita gross domestic product that’s about 23% of the national average.According to Philippine Central Bank governor Amando Tetangco, the government in Manila is drafting a bill to facilitate the expansion of the Islamic finance industry not just to elevate the industry in the South, but also in an attempt to diversify public funding sources. Sukuk are “definitely” a funding option for the Philippine government, national treasurer Roberto Tan said earlier this year, adding that he hoped Congress would pass the respective legislation “soon.”