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IILM Issues Second Sukuk Totalling US$860m and Expands Primary Dealer Network to Boost its Cross Border Islamic Liquidity Management Reach

The International Islamic Liquidity Management Corporation (IILM), whose mandate is to promote the development of a cross-border, short-term international liquidity management system for the global Islamic banking system, successfully issued its latest Sukuk – a 3-month US$860 million issuance – on 23rd January 2014. In a statement, the IILM confirmed that the Sukuk, which was issued through IILM2 SA on behalf of the IILM, was sold through an auction on 20th January for the A-1 rated certificates. The profit rate for this latest issuance is 0.55635 per cent, with payment in the form of bullet payment.

According to information filed with Bank Negara Malaysia, the central bank, a total of nine bids amounting to US$908 million were received. Of these, US$48 million were rejected, which leaves the amount accepted at US$860 million. The IILM acted as lead arranger and facility agent for the issuance. The issuance is backed by Shariah compliant sovereign assets, although the composition of the asset pool remains confidential at least to the wider market and the public both in terms of their nature and sovereign contributors. This, says the IILM, is for market sensitivity reasons.

According to Prof Rifaat Abdel Karim, CEO of IILM, the Corporation’s “inaugural 3-month issuance for US$490 million was executed on 26 August 2013, and reissued at maturity on 26 November 2013 for another 3 months. We executed a new 3-month issuance for US$860 million on 20 January 2014, which will mature on 20 April and will be reissued at maturity. The two issuances brings the total amount of outstanding Sukuk that the IILM has issued to $1,350 million.”

The auction was fully subscribed by a group of Primary Dealers which included Abu Dhabi Islamic Bank (UAE); ?Al Baraka Turk (Turkey);? CIMB Islamic Bank Berhad (Malaysia); KBL Private Bankers (Luxembourg);? Kuwait Finance House (Kuwait); ?Maybank Islamic Berhad (Malaysia); ?National Bank of Abu Dhabi (UAE); Qatar National Bank (Qatar); and? Standard Chartered Bank (UK). The IILM in fact expanded its Primary Dealer Network for this second issuance by two with Abu Dhabi Islamic Bank and CIMB Islamic Bank joining the network for this latest issuance.

The list of the primary dealers did not include Saudi Arabian and Western banking majors. However, Dr Zeti Akhtar Aziz, Governor of Bank Negara Malaysia and a Member of the Governing Council of the IILM, explained in a recent interview. “I have to tell you that there is a primary dealer bank from Saudi Arabia. Each one of us (IILM members) nominated five or six primary dealers and it depends who was ready first. Because the initial issuance was quite a small size (US$490m), each one of us ended with only one actual nomination, I think there were only about seven primary dealers for first issuance so not every name out of the pool of about 60 primary dealers participated in that. There is one Saudi bank, Al Rajhi Bank, which is included in that primary dealer pool. They have gone through the primary dealer appointment process like the other banks.”

Similarly, more Saudi banks are set to join the IILM Primary Dealer Network. Abdulrazzak M Elkhraijy, Executive Vice President and Head of the Islamic Banking Development Group at National Commercial Bank (NCB), one of the largest banks in the Arab World, agrees that a major issue for the Islamic finance market globally is the lack of short-term cross-border liquidity management instruments. “NCB,” he maintained, “is a strong supporter of the International IILM. The involvement of Saudi banks and the development of short-term, cross-border liquidity management instruments for Islamic banking is very important. I am confident that Saudi banks will take the lead in many such initiatives and NCB is in the process of completing the IILM primary dealer appointment process.”

This latest US$860 million Sukuk is the second tranche of an approved US$2bn Short Term Islamic Trust Certificates Issuance Programme which was launched on 6 April 2013, to create US dollar cross-border liquidity instruments for use by Islamic financial institutions globally. The Programme, whose underlying Islamic structure is Sukuk al Wakalah, has been assigned an A-1 rating by international rating agency, Standard & Poor’s Ratings services.

According to information filed with Bank Negara Malaysia, the US$2 billion IILM Short Term Al Wakalah Trust Certificate Issuance Programme has a tenor of 5 years and 8 months and matures on 31 December 2018. With US$1,350 million outstanding as a result of the two Sukuk issuances to date (US$490 million + US$860 million), the available limit is US$650 million, which will not satisfy market demand.

This raises the spectre of the IILM announcing a new programme size or expanding it. “Of course the IILM have to keep up the pace of regular issuance,” explained Governor Dr Zeti Akhtar Aziz. “They have announced a US$2bn Sukuk Issuance Programme and they have issued US$490 million and US$860 million issuances thus far. In the context of the Corporation’s US$2bn Sukuk Programme, they have said that during that period they will have to have regular issuances and following the exhaustion of the Programme they will announce a new Programme for the subsequent year. And they have to have the underlying high-quality assets for it.”

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