SEC sukuk guidelines may boost investor pool

THE SECURITIES and Exchange Commission’s (SEC) proposed revised guidelines on sukuk issuance are expected to deepen the Philippine capital market by broadening the range of investment instruments and drawing in more domestic and global investors, an analyst said.

“This would help develop the local capital markets, especially with more diversity in terms of investment instruments and tapping more investors locally and internationally,” Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

Sukuk consists of equal-value certificates that represent undivided ownership interests in underlying assets, investments or projects structured in accordance with Shari’ah principles, which prohibit interest and emphasize asset-backed financing and risk-sharing.

In November, the SEC released the second exposure draft of its proposed sukuk guidelines, setting out a regulatory framework for issuance and disclosure in the Philippines. The draft places emphasis on Shari’ah compliance, transparency and investor protection.

Under the proposed rules, sukuk offered to the public must be registered with the SEC and may be listed, traded and settled in line with the rules of a SEC-registered exchange, fixed-income market or other organized trading platforms.

Eligible issuers include listed and nonlisted stock companies, the National Government and its agencies, local government units, government-owned and -controlled corporations and Bangko Sentral ng Pilipinas-supervised banks including Islamic banks.

Special Purpose Entities may also issue sukuk under exemptions provided by the Securities Regulation Code.

The SEC said special purpose entities must be incorporated and registered in compliance with existing regulations and may be formed separately from originators solely for sukuk issuance, asset holding on behalf of investors and adherence to international standards including Shari’ah principles.

Mr. Ricafort said the proposed framework could widen both the investor and issuer base by opening access to major markets in the Middle East, Asia and other regions with strong demand for Shari’ah-compliant instruments.

“It would also give issuers more options to raise funds, especially through these specialized investment instruments,” he said.

The draft guidelines allow various Shari’ah-compliant sukuk structures, including sukuk ijarah, which is based on asset sale and leaseback arrangements; sukuk murabahah, involving cost-plus financing; and sukuk istisna, which is typically used to fund manufacturing or construction projects.

Other permitted structures include sukuk wakalah bil istithmar (agency-based investment), sukuk mudarabah (profit-sharing) and sukuk musharakah (joint ownership). Any additional structures would require SEC approval and full documentation to ensure compliance with Shari’ah principles.

The SEC also requires issuers to establish a Shari’ah Committee or appoint a Shari’ah adviser to certify that sukuk structures, assets and transactions comply with Shari’ah rules and to oversee ongoing monitoring and audits throughout the life of the sukuk. — Alexandria Grace C. Magno