THE BUREAU of the Treasury has raised $1 billion from the sale of 5.5-year Sukuk bonds, it said on Thursday, citing high demand.

The amount was twice the benchmark size of at least $500 million and matched the target mentioned by Finance Secretary Benjamin E. Diokno in July.

“The transaction is expected to be settled on Dec. 6,” the Treasury bureau said in a statement.

“The pricing of the Sukuk bonds turned out to be cheaper compared with US Treasury yields,” Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message. “This could be favorable to investors because they would have access to relatively higher returns amid easing rates.”

The issuance also benefits the government due to the lower rates, he said.

The notes will have a so-called Ijara and Wakala structure with a Commodity Murabaha aspect, it said.

Under the Sukuk al-Ijara, the security will represent a contract that signifies ownership of assets. This means the debt may be traded on the market and is subject to risks related to the ability of a lessee to pay their dues, as well as to market risks related to pricing.

A Sukuk al-Murabaha is the sale of goods at a price that includes the base purchase price plus a margin of profit for the seller.

Murabaha, also referred to as cost-plus financing, is an Islamic financing structure where the seller and buyer agree to the cost and markup of an asset.

The markup takes the place of interest, which is illegal in Islamic law. Murabaha is not an interest-bearing loan but is an acceptable form of credit sale under Islamic law. A Sukuk al-Murabaha certificate cannot be traded on the secondary market.

The Sukuk bonds issued by the BTr were met with high demand as bids reached nearly five times the offer, the Treasury said. It set the profit at 5.045%.

“The success of our inaugural Sukuk issuance affirms the republic’s significant standing in the international capital markets and underscores investors’ conviction in our financial inclusion agenda,” Mr. Diokno said in a statement.

“We hope this transaction will create positive momentum for Islamic banking and finance in the Philippines, and we look forward to the active participation of all stakeholders,” he added.

After the Treasury launched the Sukuk offering, Fitch Ratings, Moody’s Investors Service and S&P Global Ratings rated the bonds “BBB,” “Baa2,” and “BBB+,” matching their ratings for Philippine sovereign debt.

The net proceeds from the Sukuk bonds will complete the government’s external funding target that will be used for general purposes, including budgetary support.

Sukuk or Islamic bonds are certificates that represent a proportional undivided ownership right in tangible assets, or a pool of tangible assets. These assets could be in a specific project or investment activity that is Sha-ri’ah-compliant.

Unlike usual bonds, Sukuk bond issuances must adhere to Islamic principles and must be structured to prohibit elements such interest, uncertainty and investments in businesses that deal with prohibited goods or services.

A 2023 report from the Islamic Financial Services Board showed Sukuk dominated the Islamic capital market segment in 2022, accounting for 25.6% ($829.7 billion) of the $3.2-trillion global Islamic financial service industry last year.

This year, the Philippine government’s borrowing plan was set at P2.207 trillion, consisting of P1.654 trillion from domestic sources and P553.5 billion from foreign sources. — Aaron Michael C. Sy