QIB’s Formosa Sukuk pins Taiwan on the Sukuk map

With QIB’s debut Formosa Sukuk facility issued last week, Taiwan has made it to the Sukuk world. Till this historic deal, Hong Kong was leading in the region with three sovereign Sukuk deals. But now, Taiwan is on the move and more Formosa Sukuk are expected to come. MARC ROUSSOT has the story.

Both unprecedented and unexpected, QIB’s US$800 million fiver-year Formosa Sukuk will be listed on the Taipei Exchange on the 7th February, after the celebration of Chinese New Year.

The Reg S Islamic paper, which will also be listed on the Irish Stock Exchange, was priced at a spread of 135bps over the three-month LIBOR. It attracted over US$1 billion in bids from Asian, Middle Eastern and European investors, pushing the bank to upsize its facility from an initial US$650 million.

“Taiwan is a market where investors really like the good credit profile of Middle Eastern issuers,” according to a banking source speaking to IFN under the condition of anonymity.

A number of issuers from the Middle East have indeed tapped the Taiwanese in the past including Qatar National Bank, which issued a US$600 million Formosa bond on the 16th January, only four days before QIB, as part of its efforts to diversify its funding sources.

Prior to that, in April 2019, the UAE’s First Abu Dhabi Bank and Saudi Arabia’s Arab Petroleum Investments Corporation had raised US$1.1 billion and S$300 million respectively through Formosa bonds.

Undoubtedly, QIB’s Sukuk issuance is a considerable achievement and success for both Taiwan and its stock exchange, where Sukuk had never been issued nor listed before. And more are expected to come.

Taipei Exchange has approached Islamic banks and corporates from the Middle East and Southeast Asia, which are keen on issuing Sukuk in Taiwan. Some potential Sukuk are still waiting for the right price and right timing for issuances, Mandy Lee, from Taipei Exchange’s bond department, told IFN.

This sudden interest in issuing Sukuk out of Taiwan is the result of new regulations introduced in 2019 by the Financial Supervisory Commission (FSC) and the Taipei Exchange.

“The new regulations issued last year, allowing Sukuk to be listed on the Taipei Exchange, created a good opportunity for QIB to diversify its funding sources,” confirms IFN’s source.

Specifically, the Taipei Exchange updated its Rules Governing Management of Foreign Currency Denominated International Bonds to create a more conducive regulatory environment for Sukuk listing.

Prior to that, the FSC had tweaked its regulatory framework in June 2019 in a bid to encourage the birth of a domestic Sukuk market, boost the development of Taiwan’s securities market, and increase its diversity both in terms of issuers and types of securities.

With this update, the FSC allowed foreign issuers to sell foreign currency denominated Sukuk facilities in Taiwan and market them to professional investors. The Sukuk types are limited to Ijarah and Wakalah.

“The issuance of Sukuk in Taiwan is expected to provide professional investors with diversified investment targets, which will facilitate the flexibility of their asset allocation and attract diversified foreign issuers to participate in Taiwan’s capital market. The development of Taiwan’s capital market should have its positive benefits,” the FSC had said in a statement.

This article first appeared in IFN Volume 17 Issue 04 on the 29th of January 2019

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