'Brunei needs to raise sukuk issuances'

BRUNEI needs to increase its sukuk issuances in order to allow securities trading and ultimately create a secondary market, an Islamic finance expert said yesterday.

Sabri Ulus, the Head of Treasury and Markets at Bank Islam Brunei Darussalam (BIBD) said yesterday that the sukuk (Islamic bonds) issued by Autoriti Monetari Brunei Darussalam (AMBD) are "too small".

"At the moment what we are doing actually, whenever the issuance comes up, we purely buy it, and keep it until the maturity (period). So if we want to trade, we cannot at the moment," he told The Brunei Times.

Local investors and financial institutions can only buy and hold onto the bonds until the end of the maturity period, he said.

"Let's say if I purchase $100 million in just one go, I should be able to trade maybe up to $30 million off that (total bonds purchased), and I can hold on to the remaining $70 million. Right now we are buying, depending on the allocation (per investor), $20 million and $30 million, which is too small to trade."

On the sidelines of the 8th Annual Brunei Roundtable, Ulus said that "there are no issues definitely but there are challenges" in the local sukuk market.

One of the main challenges is that the short-term sukuk issuances offer low-yields, he said.

"So when we talk about three-month Brunei-dollar denominated sukuk, it is only giving a yield of 0.15% per cent," he said.

Ulus then said that AMBD needs to look at more local government projects for financing to enable them to extend the maturity period and increase the size of the issuances.

"I guess they are looking at certain projects to finance these issuances through, so when those projects come in, immediately the funds will go in there, and instead of $100 million of course the size of the issuance will increase, and therefore the secondary market will come into place," he said.

"We need certain projects in order to come up with sukuk. Sukuk must have certain asset-backing or be asset-based. If you do not have sufficient asset-based projects, you cannot issue sukuk.

"Again, going back to the local market, we need to have certain projects and certain investments, in order to issue the sukuk, (but) as our AMBD colleagues mentioned, they are looking at a couple of infrastructural projects where they can link the sukuk issuance to there, (so) that will be the perfect solution to what we are looking for."

Ulus added that Brunei needs to lure more international investors into the local sukuk market.

"We need more international investors as well. At the moment, it is just purely local investors and local financial institutions."

Deputy Chairman of AMBD Yang Berhormat Pehin Orang Kaya Indera Pahlawan Dato Seri Setia Hj Suyoi Hj Osman, who is also the Minister of Development, said that "recent figures have shown that the global sukuk market continues to grow rapidly by 36 per cent year-on-year".

"In the case of Brunei Darussalam, the sukuk market is dominated by short-term government issuances. To date, a total of 79 government sukuk have been issued amounting to $4.8 billion since its maiden issuance in 2006," he said in his key note address at the opening ceremony of the event.

He said that the programme "aims mainly to act as a catalyst to promote the development of our domestic capital market".

Sukuk commonly refers to the Islamic equivalents of bonds and since interest bearing bonds are not allowed in Islam, Sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest.

Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.The Brunei Times