The state has issued a USD 200 million Sukuk. A Sukuk is an Islamic financial certificate, similar to a bond in conventional finance, that complies with Islamic religious law commonly known as Sharia. Although Sukuk is not a loan it is still a debt.
The Sukuk which was issued on 2nd September 2021, is an asset-based Sukuk. The government used Velana building and other government buildings in the capital Male' to issue the Sukuk. So far this year, the government has issued USD 500 million in total as Sukuks. In March USD 200 million was issued while in April USD 100 million was issued. All three will mature in 2026. The Sukuk issued on 2nd September was issued at a coupon rate of 10.5%.
The Sukuks issued in March and April were backed by Dharumavantha Hospital. The proceeds from the previous Sukuk was to pay for the Sunny Side Bond which was to mature in 2022. So far the government has not revealed what they intend to do with the proceeds of the September Sukuk. However it is highly likely that it will be used to manage recurrent expenditures.
The government issued the Sukuk through Maldives Sukuk Issuance Limited, a special purpose vehicle (S.V.P), which is wholly owned by the Ministry of Finance on behalf of the Government of Maldives. The company is registered in the Cayman Islands. The company is solely based to issue Sukuk with a special law. An asset worth more than 51% of the Sukuk needs to be transferred under the S.V.P. Therefore Dharumavantha Hospital was transferred under S.V.P and the recent Sukuk Velana Building was transferred under S.V.P.
“The Maldives Financial Review” online News which brings the financial news to the public stated that with this additional Sukuk issuance, total debt is now projected to increase to over MVR94 billion or 140 percent of GDP in 2021.
This increase in debt distress is one of the reasons why Moody’s downgraded its sovereign rating for the Maldives in August 2021. However, regarding this, the Finance Ministry blamed Moody’s.