Multilaterals – Islamic Development Bank US$1.7bn Sukuk

IsDB Keeps Sukuk Momentum Going with Third Issuance in 2021 Bringing its Total for Jan-Oct 2021 to US$4.6bn

The Islamic Development Bank (IsDB), the multilateral development bank (MDB) of the OIC (Organisation of Islamic Cooperation) countries, successfully priced its third Sukuk issuance to date in 2021 with a 5-year US$1.7 billion offering in October.

The Sukuk was issued by IsDB Trust Services Limited incorporated in Jersey under the IsDB’s US$25 billion Trust Certificate Issuance Programme. The transaction was priced at par with a profit rate of 1.435%, payable on a semi-annual basis.

The IsDB is the most proactive and prolific issuers of AAA-rated international Sukuk. The Bank is tapping the international markets more often than previously partly driven by the impact of the COVID-19 pandemic and the increasing demands from member countries for help towards their post-pandemic economic recovery effort.
In fact, the IsDB Group announced at its 2021 Annual Meetings held in Tashkent, Uzbekistan in September additional US$1.2 billion COVID-19 mitigation funding commitments as part of its effort to support the post-pandemic economic recovery among its member countries.

The IsDB mandated a consortium of banks to handle this third Sukuk transaction and arrange a series of investor calls in the UK, Europe, the MENA region, Asia and with Offshore US Accounts. The Joint Lead Managers and Joint Bookrunners for this issuance were Credit Agricole CIB, First Abu Dhabi Bank, HSBC, JP Morgan, KFH Capital, Natixis, SNB Capital, SMBC Nikko, Standard Chartered and the Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the IsDB Group.

The transaction was announced to the markets on Tuesday, 12 October 2021. The initial price thoughts were set at the Mid Swap (MS) plus 30 basis points (bps) area and released on the next day. With a very strong demand from investors, the deal was eventually priced at MS plus 25 bps, tightening by 5 bps, with an overall profit rate of 1.435%, with no new issue concession.

Following the pricing, Dr. Muhammad Al Jasser, IsDB President, explained: “With another successful Sukuk issuance, IsDB continues to mobilize market resources at a low cost in order to finance the recovery of its Member Countries from the pandemic, which is aimed to be a green and resilient recovery. We are thankful to the investor community for reaffirming their confidence and trust in IsDB and its mission of sustainable social and economic development.”

The IsDB issued a 5-year US$2.5bn Sustainability Sukuk in March this year – its single largest ever volume – which was priced at a profit rate of 1.262% payable on a semi-annual basis and a yield of MS plus 33bps. In May it issued its maiden Secured Overnight Financing Rate (SOFR)-linked US$400 million Sukuk – a 3-year Floating Rate Note (FRN) that raised US$ 400 million from a single investor on a Private Placement basis. The Sukuk was priced at par (100%) and at a mutually agreed coupon payable on a quarterly basis.

With this latest offering, the total funds raised by the IsDB in the January-October 2021 period has amounted to US$4.6 billion. According to the multilateral, the proceeds of this latest US$1.7 billion issuance “will be utilized for the development mandate of the Bank, which also include its wide-ranging response to financing the recovery from the pandemic for its Member Countries.”

The issuance, according to the IsDB, attracted strong demand from real money investors looking for both quality and value and this was validated by IsDB’ s robust credit and financial position and reaffirmed by its AAA ratings, by Moody’s, S&P and Fitch Ratings (all Stable Outlook). The 5-year Sukuk issuance was well over-subscribed with the final order book reaching in excess of US$2.4 billion.

Due to the high demand, the Bank was able to tighten the pricing by more than 16% between announcement and closing. In terms of the final allocation, the distribution was well diversified with 39% allocated to Middle East and North Africa (MENA), 37% to Asia, 21% to Europe, and 3% to Africa.

Overall, the deal witnessed strong participation from real money accounts and official institutions as well as several first-time investors, which says the Bank, “is a testament of IsDB’s credit strength,” as 60% was allocated to central banks and official institutions, 37% to bank treasuries and 3% to fund managers, private banks and others.

Dr Zamir Iqbal, the Vice President (Finance) and CFO of IsDB, remains confident
that “this is another landmark Sukuk issuance as we continue to support our Member Countries with much needed cost-effective financing amid the pandemic. We are thankful to the wide range of investors, especially the new investors who participated in this transaction for their faith in our AAA-rated paper, which provides best-in-class risk-adjusted returns with a development impact.”

The two-stand-out features of this issuance which according to Søren Elbech, the Global Head of Supranational Institutions at J.P Morgan, include “its lowest spread in more than 7 years as well as an upsized transaction,” and the involvement of new sovereign and institutional investors.

In the latter respect, said Salman Ansari, Head of Capital Markets at Standard Chartered, “IsDB has made significant strides over the years to enhance its credit positioning and value proposition in global markets, which has resulted in a broader appreciation of IsDB’s AAA ratings and HQLA Level 1 status. This is evidenced by an increasing number of high-quality Sub-Saharan African (SSA) investors subscribing to IsDB paper which in turn has resulted in optimal pricing and liquidity.”

This says Mohamed Hedi Mejai, Acting Director of Treasury at IsDB, is a result “of years of efforts to raise more awareness of the Sukuk instrument in the global capital markets.”

The Trust Certificates have been admitted for listing on the Irish Stock Exchange whose trading arm is Euronext Dublin and NASDAQ Dubai.

The listing strengthens the IsDB’s position as the largest supranational Sukuk issuer on Nasdaq Dubai with a total value of US$18.8 billion through 13 issuances listed on the exchange since 2016.

This issuance is the second listing by the Islamic Development Bank on Nasdaq Dubai in 2021, as the Bank listed its second Sustainability Sukuk issuance of US$ 2.5 billion in April 2021. Nasdaq Dubai is one of the largest Sukuk listing venues globally, with a total value of US$80.1 billion.

 

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