BAHRAIN: The Central
Bank of Bahrain (CBB) will issue BHD100 million (US$263.55 million) in
Sukuk Ijarah next week, on the 19th January, in which
investors would be able for the first time ever, subscribe directly in
the primary market through registered brokers at Bahrain Bourse (BHB),
according to an official announcement by the bourse.
This announcement comes following BHB and CBB’s joint effort to enhance
the kingdom’s bond and Sukuk market via the introduction of a pioneering
mechanism allowing direct ownership in government debts (See IFN Daily
Cover on the 7th January 2015: ‘Bahrain engineers pioneering
mechanism to advance Islamic debt capital market’). While already a
successful Sukuk issuer, it is apparent that the government, via the
central bank and BHB, is looking to attract a wider retail investor base
in the upcoming issuance.
Apart from exempting charges related to account opening for the purpose
of purchasing government Sukuk during the whole month of January, BHB has
set the minimum subscription at BHD500 (US$1,317.77); while for
subscribers applying for BHD10,000 (US$26,355.3) and above, a minimum
allotment of 10,000 Sukuk will be assigned to every subscriber, with the
remaining quantity to be allocated on a pro rata basis. The instruments
are underpinned by assets owned by the Bahraini government, in particular
land in Zallaq.
To be issued at a par value of BHD1 (US$2.63) apiece, the impending
issuance also has several distinctive features unique from previous
monthly government Sukuk programs. For starters, the facility will be for
an extended tenor of 10 years instead of the usual three months (the
latest CBB Sukuk Ijarah, however, carried a three-year maturity). And
while the monthly programs in general were assigned profit rates of less
than 1% to 3%, the upcoming issuance will carry a much higher return rate
of 5.5%.
While there may not be a need for the government to set such an
attractive rate of return considering the consistent phenomenal demand
for its Sukuk programs (the previous two Sukuk Ijarah were oversubscribed
by at least three-fold while the latest Sukuk Salam oversubscribed by
almost two-fold), doing so would almost certainly drum up retail demand.
With this, we can expect to see a surge in the primary Sukuk market of
Bahrain, but will we see similar interest in the secondary Islamic debt
market? Only time will tell.
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