A new sovereign addition to the Asian ratings game?

Brunei has become the latest Asian nation to consider an international credit rating, following in the recent footsteps of Mongolia and Papua New Guinea.

The key difference between Brunei and its most recent predecessors is that while it too is very small, it is also very rich. According to a small number of investment banks that have been pressing their case, the country is said to have been mulling the idea of a rating for a number of years, but has never progressed very far because it has no real need for funds.

This may now be changing as the Sultanate is keen to promote its new international financial centre set up late last year in competition with Malaysia's Labuan. The two are also currently considering forming an Islamic financial market in association with Bahrain, Indonesia, Saudi Arabia and Sudan.

But as one specialist puts it: "The problem with both Labuan and Brunei is that there is not that much demand for dollars in Asia full stop at the moment, let alone along Islamic lines."

Islamic debt instruments are typically structured to avoid interest payments and are usually either asset-backed deals, where repayment is couched as a lease payment, or are priced at a discount and redeemed at full face value. Issuance is further complicated by the fact that only certain industries can issue bonds and all have to be vetted by the Middle East-based Shariah council. 

For the past year, Brunei government officials have been saying that the country would like to use increased revenue from oil to diversify the economy into new areas such as tourism - traditionally hampered by a lack of alcohol - and Islamic financing.

But bankers believe that there may yet be a number of hurdles getting the country in front of the international rating agencies. Not least among these is Brunei's unwillingness to make any financial disclosure, such as the country's level of reserves. A number concluded that it is difficult to pinpoint where ownership by the state ends and ownership by the Sultan - also know as His Majesty Sultan Haji Hassanal Bolkiah Mu'izzaddin Waddaulah, the Sultan and Yang Di-Pertuan of Brunei Darussalam - begins.

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