• 
• 

Published on September 7, 2007

 If the plans go ahead, the Islamic bonds, or sukuk, will be the first issued in Thailand.

Acting bank president Dheerasak Suwannayos said the bank was encouraging Thai investors to issue Islamic bonds as a new alternative for raising funds with lower costs.

The coupon rate for sukuk is generally lower than that for conventional bonds, because of low competition in the market. However, demand for the financial product is quite high, particularly in Islamic markets like Malaysia and the Middle East, Dheerasak told a seminar yesterday entitled "The First Thailand Islamic Finance Conference".

"With low competition in the market, the coupon rate for sukuk tends to be about 50 basis points lower than general bonds with the same criteria. As crude oil exporters, Middle East investors have high purchasing power. Therefore, sukuk bonds are an attractive alternative for Thai organisations to mobilise funds for both government and the private sector."

Sukuk bonds are becoming a wellknown financial product around the world, Dheerasak said. The procedure for issuing sukuk must be subject to Islamic sharia law. They need underlying assets that comply with Islamic principles. No "vice" businesses, including banks, can provide underlying assets for sukuk. Banks, for example, receive interest from customers, and that is against Islamic law.

Dheerasak said the Islamic Bank planned to offer sukuk worth Bt6 billion around the second quarter of next year. Property will be used as underlying assets, but that plan may be cancelled if the bank can raise enough deposits for loan expansion.

Meanwhile, the bank will offer its services as financial adviser and bond underwriter for sukuk issues. One customer in the property sector is currently planning to issue sukuk worth Bt5 billion in next year's second quarter, Dheerasak said. Therefore, one of the deals, either the bank's sukuk or the customer's, will be Thailand's first issue of Islamic bonds.

Somruedi Banchongduang,

 The Nation