| AMMAN/SYDNEY, June 12
AMMAN/SYDNEY, June 12 Jordan's government is
studying a proposal to issue its first Islamic bond but pressure
to cut public debt and a preference for concessionary loans from
aid donor countries could hinder the plan.
A sukuk programme may start as early as next year, two
government officials with direct knowledge of the discussions
said, declining to be named as the matter is not yet public.
A committee including the finance ministry and the central
bank is looking at a proposal for a recurring issuance
programme, said one source, adding that details such as the
size, tenor and frequency of issuance had yet to be determined.
"The government plans to start issuing sukuk from next year.
All these aspects for the sukuk are in the process of discussion
Jordan passed a long-awaited law at the end of 2012 allowing
the government to raise funds through sukuk, but no issue has
materialised since then, even though the state is increasingly
using international bonds to help cover its budget deficit.
Although the country has an established Islamic banking
sector, sukuk have been slow to appear because of legal
limitations on the transfer of assets required to underpin such
In April this year, lawmakers appeared to clear away that
obstacle by enacting two by-laws that allow sukuk to be issued
without a transfer of assets to special purpose vehicles, and
specify the structures that can be used. These include ijara,
mudaraba and musharaka - all common Islamic finance formats.
A second source from the finance ministry said a Jordanian
sovereign sukuk could raise over $1 billion, and that it might
be issued in multiple currencies and sold to retail investors.
However, a government preference to use soft loans from aid
donor countries, which carry more favourable terms, may present
an obstacle to the plan, the source added.
Last month, for example, the central bank said it would
issue $1 billion in conventional sovereign bonds backed by the
United States in July. The U.S. backing is expected to allow
Jordan to secure very cheap pricing on the bonds; it is not
clear that the government would be willing to increase its costs
by issuing sukuk without such backing.
If a recurring sukuk programme does go ahead in Jordan, it
could give a boost to the banking system by providing a tool for
Jordan's four Islamic banks to manage their surplus funds. The
central bank estimated last year that the four banks accounted
for 17 percent of the total surplus reserves in the kingdom's
The banks include Jordan Islamic Bank, Jordan
Dubai Islamic Bank and Islamic International Arab
Bank; they held combined assets of 4.7 billion dinars ($6.6
billion) at the end of 2012, according to the latest company
data. Saudi Arabia-based Al Rajhi Bank started Islamic
operations in the country in 2011.
A sovereign sukuk could also encourage corporate issues.
Thus far, Jordan's only corporate sukuk remains that of Al-Rajhi
Cement, which issued an 85 million dinar, seven-year sukuk in
Aid-dependent Jordan imports almost all its energy and
commodity needs. It is struggling with a large Syrian refugee
influx, while tourism receipts and remittances from Jordanians
working abroad have fallen since the Arab Spring uprisings.
The IMF started a three-year, $2 billion loan programme for
Jordan in 2012 to help it speed up economic reforms and boost
($1 = 0.7078 Jordanian dinars)
(Editing by Andrew Torchia)