Thailand is considering issuing its first sovereign Islamic bond, the deputy finance minister said on Thursday, and bankers are already studying a proposal to raise about $500 million next year.
"I see an opportunity to issue Islamic bonds to help finance our infrastructure projects," Thai Deputy Finance Minister Sommai Phasee told Reuters by telephone.
"But we have to study and consider first whether the issue can give cheaper costs than other (conventional) markets."
A working group has been formed to study the proposal and is looking at issuing about $500 million in bonds in the second or third quarter of next year, said Dheerasak Suwannayos, head of the Islamic Bank of Thailand and a member of the group.
"We want to tap demand in the Middle East. This is a new money channel we want to jump into, because of massive demand while supply remains less," Dheerasak said.
Thailand plans to spend more than $50 billion over the next decade on infrastructure projects, including electricity, road extensions and mass transportation projects.
The Thai government is likely to mandate a Malaysian bank as a financial adviser to help structure the bonds, Dheerasak said. The state-backed Islamic Bank of Thailand, the country's only Islamic bank, could be a co-arranger, he added.
"Malaysia has more experience in this market, so we are considering seeking a Malaysian bank to help structure the bonds and work with our bank," Dheerasak said.
Malaysia has the world's largest Islamic bond market, worth about $47 billion.
Islamic bonds do not pay interest, which is banned as usury under Islamic law, and are structured as profit-sharing or rental agreements underpinned by physical assets.
Islamic finance caters to growing demand among the world's 1.2 billion Muslims for investments that comply with their law.
Cheaper funding costs were likely in the Islamic bond market, Dheerasak said.
"As we studied this market for a while, we think we could save around 50 basis points compared with the coupon on a conventional bond." ($1= 3.4890 Malaysian Ringgit)