The Islamic Development Bank (IsDB), the multilateral development bank (MDB) of the OIC countries, successfully priced its largest Sukuk issuance ever, raising US$2 billion in 5-year Trust Certificates in March 2020.
The Sukuk was issued by IsDB Trust Services Limited under the IsDB’s US$25 billion Trust Certificate Issuance Programme and, according to the Bank, the transaction was priced at par at with a profit rate of 1.809% payable on a semi-annual basis, which according to the MDB is the lowest for its papers since 2016.
This is the IsDB’s first public issuance of 2020 with further issuances on the card during the year. There are indeed signs that the IsDB is tapping the international markets more often than previously. In 2019, for instance, the IsDB issued three Sukuk issuances totalling US$3 billion and €1 billion respectively.
These comprised a 5-Year US$1.5 billion issuance, priced at par at 2.843% per annum in April, followed by a US$1.5 billion 5-year Sukuk Wakalah priced at par at 1.975% per annum in September – both to be payable on a semi-annual basis, and a debut €1 billion 5-year Green Sukuk priced at par with a profit rate of 0.037% to be payable on an annual basis.
IsDB Trust Certificates are guaranteed by the IsDB as Obligor, and have been assigned a rating of AAA, Aaa and AAA by Standard & Poor’s (S&P), Moody’s Investors Service and Fitch Ratings respectively. The IsDB Board of Governors is keen for the MDB to fully leverage its above ‘AAA’ rating status assigned by the three major international rating agencies for 15 consecutive years, and its “Zero-Risk Weighted” rating assigned by the Basel Committee on Banking Supervision and the European Commission for multilaterals, in its resource mobilisation strategy.
The IsDB mandated Dubai Islamic Bank, HSBC, Landesbank Baden-Württemberg, Natixis, Standard Chartered Bank and the Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the IsDB Group, in February to act as lead managers and bookrunners to the transaction and to arrange a series of investor meetings.
The transaction was announced on Tuesday 18th February with the release of the initial price thoughts of Mid Swap (MS) plus high-40s basis points (bps) area at the London opening. “The strong demand from investors in the form of indications of interest were over US$1.15 billion,” explained the MDB, “allowed the IsDB to revise the guidance at the MS + 40 – 43 bps range on the day following the London open. The deal was eventually priced on Wednesday 19th February at MS plus 40bps, which resulted in an overall lower profit rate compared to IsDB’s September 2019 issuance which was priced at MS plus 50bps, with an overall profit rate of 1.957%.”
According to the MDB, this latest US$2 billion Sukuk achieved the highest ever order-book with tight pricing for an IsDB trust certificates transaction. “In a cautious market environment (due to the Covid-19 virus outbreak),” maintained Dr. Bandar Hajjar, President of the IsDB Group, “this transaction once again validates IsDB’s robust credit and financial position, reaffirmed by its AAA ratings. Coupled with its commitment to support liquidity in Islamic capital markets, it made a compelling story for investors to participate in the book, with many novel names entering for the first time. I would like to thank the IsDB’s Member Countries and other investors for their trust in IsDB and its mission, and for their unwavering support in making this the largest Sukuk issuance ever for IsDB. We hope that the lower cost of funding will continue to contribute towards extending better financing terms to our Member Countries for supporting their developmental needs. We are also very happy to see new investors subscribing to IsDB Sukuk.”
The final allocation to investors, stressed the IsDB, has a well-diversified distribution, with 46% allocated to MENA, 33% to Asia, 21% to Europe and others, respectively. Overall the deal saw strong participation from real money accounts and official institutions, which, says the MDB, is another demonstration of IsDB’s credit strength. Some 79% was allocated to central banks and official institutions, followed by 13% to banks, 8% to pension fund, fund managers and others.
Dr. Zamir Iqbal, IsDB Vice President of Finance and CFO, confirmed that there would be more Sukuk issuances from the IsDB in 2020.“This is our biggest ever Sukuk issuance and we are delighted to have achieved this milestone this early in the year. With our 2020 funding plan target which is north of US$ 5 billion, we look forward to the strong support of the investors who are looking for the best risk-adjusted returns with our AAA-rated paper. The investor diversification we achieved shows that the IsDB development story is gaining stronger traction in new markets and we hope to sustain this momentum for future issuances.”
The robust demand and tight pricing for this latest IsDB offering, say local bankers, is a testament of the robust balance sheet of the MDB and will only improve investor perception of IsDB international Sukuk offerings in the future.
The Trust Certificates are listed on the Euronext Dublin, NASDAQ Dubai and Bursa Malaysia (under the Exempt Regime). This latest listing on Nasdaq Dubai, according to the Bourse, is the largest Sukuk by value to be listed on the exchange by IsDB. The Sukuk makes IsDB the leading Sukuk issuer by total value on Nasdaq Dubai at US$15.64 billion.