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Friday, 7 September 2007

Thailand may tap Islamic markets-Minister recommends floating Islamic bond

Thailand should tap the massive Islamic financial market to help fund its future infrastructure and private investment needs, says Sommai Phasee, the deputy finance minister. Infrastructure investment over the next decade could reach $50 billion across a range of sectors such as power, petrochemicals and manufacturing.
Mr Sommai said the government was considering floating sovereign bonds compliant with Islamic Shariah law to enhance Thailand's access to Asian and Middle Eastern financial sources. Islamic financial services would also be broadened in Thailand to assist local consumers and develop the wholesale market, he said at a conference on Islamic funding. Marcus Hurry, the chief executive officer of HSBC in Thailand, said the country was geographically well positioned to engage in Islamic finance, considering co-operative ties with Muslim countries including Malaysia and Brunei. He said the government could consider issuing Shariah-compliant bonds as part of its funding plan for future investment projects. The bonds, termed Sukuk, provide subscribers an ownership right in the underlying assets through a special-vehicle company. Shariah law eschews payment of interest. Instead, deposits receive returns based on investment, while lending activities are structured as profit-sharing arrangements with borrowers. Mr Hurry said there was huge pent-up demand and liquidity in regional Islamic markets. Dheerasak Suwannayos, the acting president of the Islamic Bank of Thailand, said the bank was considering issuing Sukuk instruments for the first time in 2008. The six-billion-baht issues, would be backed by asset receivables and serve as an alternative vehicle for the bank to raise deposits in light of uncertainties over interest rates. The Islamic Bank of Thailand also planned to underwrite five-billion-baht worth of sell-back bonds backed by receivables of a listed developer next year, Mr Dheerasak said. He said the Islamic Bank of Thailand expected to complete a 3.3-billion-baht capital increase next year, with total capital increased to 4.3 billion, to help finance business growth. Of the new capital, 1.6 billion baht is expected to come from the Finance Ministry and the remainder from existing or new investors. The Islamic Bank of Thailand is negotiating with a number of foreign investors, including a Brunei institution to take up to a 24% stake. The Finance Ministry's shareholding in the Islamic Bank, meanwhile, should increase to 49% from 36% now after the capital increase. Other shareholders now include the Government Savings Bank, Krung Thai Bank, BankThai, Siam City Bank, the Islamic Bank of Brunei and the Thailand-Brunei co-financed Thailand Prosperity Fund. Mr Dheerasak said the bank planned to have 20 billion baht worth of deposits. - (BP, 6 Sep 07)
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