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Friday, 19 December 2008

Brunei: Long-Term Government Sukuk Needed To Inspire Private Issuers

Bandar Seri Begawan - The Brunei Darussalam government must start issuing longer term sukuk or Islamic bonds to take the next step in developing its Islamic capital market, bankers and investment managers said yesterday.

In a market regarded as still in its infancy stage, the government plays a key role in encouraging private business to issue sukuk as a way of raising capital. Its own sukuk issuance in effect sets the rates at which other issuers will sell their syariah-compliant bonds.
"The government has started to issue sukuk two years ago but the longest sukuk (tenor) is only one year, which is very short term ... we need to see more five or 7-year sukuk or even 10-year sukuk," said an investment manager at the sidelines of the Brunei Islamic Finance News Forum yesterday.
A developed Islamic financial market has bond issuance with tenors of up to 20 years.
An asset management representative, speaking on condition of anonymity, explained that the government's sukuk issuances are "almost an academic exercise" to set a benchmark should companies wish to start issuing their own sukuk. "The current issuance of stikuk is to build a rate and to encourage big companies to issue their own sukuk. Brunei is still in its infancy stage mainly due to the fact that the maximum sukuk issued is only one year."
The Sukuk Holding Properties Inc and Sukuk (Brunei) Inc were set up by the Ministry of Finance and registered under Brunei Darussalam's International Business Companies Order 2000 to act as conduits for the government to issue sukuk or Islamic financial certificates. Started in April 2006, the Government of Brunei issues the sukuk at a yield or rental rate of 2.275 per cent.
During the forum yesterday at The Empire Hotel & Country Club, finance experts said Brunei needs to build its product range and infrastructure in order to start developing its Islamic capital market.
Charlene Low, senior business development manager of FTSE and keynote presenter at the event, said there are two things that need to be done: "The first is really to have more products and the second is to have more information sharing and more collaboration with the likes of Malaysia.
"If Brunei can have more collaboration with these countries to share their experience I think that would speed up the learning curve and make it a lot easier, and after that I think having more of these products available not just for the local Brunei market but also to extend it to the region," said Low.
Osman Jair, managing director of Insurans Islam Taib, said that compared with conventional banking, Islamic banking is still in its infancy stage. One of the steps that Tabung Amanah Islam Brunei (Taib) has taken in order to create awareness is encouraging customers to start Islamic banking as young as possible. "The strategy is to make the public aware, where even infants can open accounts with Taib and can also participate in takaful products," he said.
The Brunei International Financing Centre, which offers a comprehensive suite of legislations and relevant licences, "is one infrastructure that will help to establish more financial banks or offshore banks, and it is one way the government is helping to kickstart the Islamic financial market in Brunei", he said.
An asset management representative said that other things that would need to be put in place would be to have a complete legal framework.
There remains a question; however, on how fast the market can grow given the small number of big companies based in Brunei that would be interested in raising money by issuing sukuk in the Sultanate. -- Courtesy of The Brunei Times
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