Date: November 2023
Issuer: ROP Sukuk Trust
Obligor: Republic of the Philippines
Size: $1 billion
Structure: Trust certificates (wakala/ijarah/murabaha)
Tenor: 5.5 year
Banks: Citi, Deutsche Bank, Dubai Islamic Bank, HSBC, MUFG, Standard Chartered (joint bookrunners and lead managers)
The number of countries looking to issue in the global sukuk market has grown in recent years, leading to innovative debut issuance from all over the world.
This trend is expected to continue, helping to broaden and deepen the global sukuk market, which last year recorded $168 billion of issuance, down slightly on the year before.
Among multiple debut issuers and distinctive transactions, there was one sovereign sukuk last year that stood out for its innovative structural quality: the Philippines’ inaugural $1 billion 5.5-year senior unsecured sukuk.
The 144A/RegS transaction, issued by ROP Sukuk Trust and priced in November, notched up several market firsts, including a ground-breaking structure that meant the sukuk was issued via special purpose trust – administered by the Land Bank of Philippines – instead of a special purpose vehicle, through which all other sukuk are issued.
Such an innovation, needed to navigate a complex local law, ultimately enabled the Philippines’ debut sukuk to proceed, in turn creating a mechanism for the country to return to the market as often as needed.
Importantly, it also opens up new opportunities in sukuk structuring, potentially driving even more interest in the market from other sovereign and sub-sovereign borrowers.
While the sukuk was successfully sold over three days, the transaction was the culmination of more than a year of work
Together with the trust structure, the transaction combined ijara and wakala formats with a commodity murabaha component, an innovative combination to cater for the type of assets owned by the Philippines.
Under this structure, at least 55% of the sukuk proceeds will be used by the issuer to purchase fixed assets – such as buildings and infrastructure – which are owned and in use by the Philippines and/or are owned and leased to third parties.
The remaining 45% of the sukuk proceeds will be used by the issuer to enter into commodity murabaha investment with the Philippines.
While the sukuk was successfully sold over three days, the transaction was the culmination of more than a year of work by the Philippines Bureau of Treasury, the Bangko Sentral ng Pilipinas, the department of justice, and the country’s financial and legal advisers, navigating complex local law requirements and ultimately structuring a deal that would work.
Citi, Deutsche Bank, Dubai Islamic Bank, HSBC, MUF, and Standard Chartered were joint lead managers and bookrunners on the sukuk, which attracted bumper orders of $4.9 billion, enabling the deal to be priced at 80 basis points over the five-year Treasury – 35bp lower than initial price guidance and inside Philippines’ equivalent conventional bond curve – with a profit rate of 5.045%.
While achieving attractive pricing was important, more important was the Philippines successfully diversification of its funding sources and investor base with a new and innovative instrument that enabled it to tap into Islamic liquidity, especially in Gulf Cooperation Council countries and Asia.
Close to half the transaction was bought by Middle East and Asia investors, with the other half sold to buyers in Europe and the US.
