Brunei sukuk can go global but not soon

WHILE high liquidity conditions in the domestic market ensure a healthy appetite for sukuk issuances, the global sukuk market may see Islamic bonds being sold out of Brunei in the near future, bankers said yesterday.

At the moment, however, Brunei has enough domestic buyers of its own Islamic bonds.

There is so much liquidity within Brunei's domestic market that it deems it unnecessary for issuers to "go and sell something that is unknown in the international market", said Bank Islam Brunei Darussalam's (BIBD) acting managing director Javed Ahmad.

"But with the passage of time I do see that future sukuks are likely to be distributed internationally as well."

At this stage, institutions are the predominant buyers of sukuk issued in Brunei, Javed said, but retail investors are not being excluded. However, retail investors get far more attractive returns on deposits with banks.

As far as investing in the Brunei government sukuk is concerned, "it is the full faith and credit of the government of Brunei... and that's the reason why the returns are not as attractive," he said.

To date the Brunei government has issued $1.8 billion worth of Islamic bonds since it launched the Sukuk Al-Ijarah programme in April 2006.

Brunei Liquified Natural Gas (BLNG) issued $100 million worth of sukuk in August 2006.

All sukuk issuances in Brunei have had no ratings as they are for domestic consumption only.

"There's lots of sukuk that get distributed internationally without any rating. Under the current financial condition, unrated sukuk are far more difficult to sell. Purely because a rating means that someone has given a bit of help saying that 'you're alright'," Javed said.

"There are very few companies in Brunei that basically will fit the bill. Say for example, generally it is open to the large, well-managed companies. It would be far more a challenge, if it is some family-owned business, no matter how good."

Although institutions dominate the demographics of buyers for sukuk issued locally, interested investors are able to approach banks who buy the Islamic bonds to purchase them.

"So customers do have a choice. If someone is interested and they were to approach us... and the next time we buy, we can give them an allocation that's fine. I don't think there's anything stopping us from passing some to our investors, he said.

"It's the same thing with the IDB sukuk. We didn't have the time, but if you wanted, we could actually pass part of that to our high net worth customers, because generally, say for example the IDB sukuk the minimum investment amount is US$100,000."

So far there have not been any instances of individuals coming out to buy government sukuks.

On whether there are any companies who have expressed interest in selling sukuk abroad, he said, "on that, you have to actually wait, and watch this space".

The Brunei Times