SEC issues regulatory framework for Islamic bonds

MANILA, Philippines — The Securities and Exchange Commission (SEC) wants to help boost the development of Islamic banking and finance in the country through the release of a regulatory framework for sukuk issuance.

In line with its mandate to regulate the issuance and sale of securities, including bonds and other debt instruments, the SEC has issued the draft guidelines on the issuance and disclosure of sukuk bonds in the country.

The commission defines sukuk or Islamic bonds as certificates that represent a proportional undivided ownership right in tangible assets, or pool of tangible assets and other types of assets.

These assets could be in a specific project or investment activity that is Shari’ah-compliant.

According to the SEC, sukuk bond represents an important avenue for international fundraising and investment activities generating significant cross-border flows globally.

It is also regarded as the most popular financial instrument in the Islamic capital market.

The SEC said that most countries looking into the development of the sukuk market seek to establish a conducive environment that would support sukuk issuance and safeguard investor protection.

“Pursuant to the powers vested in the commission, the SEC issues the following guidelines on the issuance and disclosure of sukuk bonds to ensure transparency, investor protection and compliance with Shari’ah principles,” it said.

Under the draft guidelines, the SEC said entities that may issue sukuk are the national government under the exemption provided by the Securities Regulation Code and special purpose vehicles created specifically for sukuk issuance.

Publicly listed companies may issue sukuk only through a special purpose vehicle created specifically for sukuk issuance, incorporated and registered with the SEC and compliant with both SEC regulations and Shari’ah principles.

The rules state that the special purpose vehicle must be incorporated as a separate legal entity, distinct from the originator and established solely for sukuk issuance and holding the assets for sukuk holders.

It must also adhere to international standards for sukuk issuance, including Shari’ah principles and comply with the provisions of the Revised Corporation Code of the Philippines.

The special purpose vehicle should have a minimum authorized capital stock of P500 million, with a minimum subscribed capital stock of P125 million and minimum paid-up capital of P31.25 million.

Issuers of sukuk are required to disclose various information such as a detailed description of the Sukuk structure and  transaction flow, which must be submitted to the SEC for review and approval.

The draft rules also require clear disclosures on the ultimate source of funds used to make distributions as well as description on the use of proceeds beyond the initial application by any special purpose vehicle used in the sukuk structure.

Issuers are likewise mandated to appoint an accredited Shar’iah supervisory board or Shari’ah advisory board to certify that the sukuk structure and underlying assets comply with Shari’ah principles.

Further, the SEC requires all publicly offered sukuk to obtain a credit rating from an SEC accredited agency to assess the creditworthiness and risk profile of the sukuk.