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IsDB Issues Second US$1.5bn Sukuk in International Market in September as Increased Central Bank Subscription Underlines MDB’s Credit Strength

The Islamic Development Bank (IsDB), the multilateral development bank (MDB) of the OIC countries, returned to the international market by successfully pricing a US$1.5 billion 5-year Trust Certificates (Sukuk) transaction on 25 September 2019, the second public Sukuk offering by the MDB in 2019.

The Sukuk Wakalah was issued by IsDB Trust Services Limited under the IsDB’s US$25 billion Trust Certificate Issuance Programme. According to the Bank, the transaction was priced at par at 1.975% per annum, to be payable on a semi-annual basis.

The Joint Lead Managers and Bookrunners for this issuance were Citi, Emirates NBD, First Abu Dhabi Bank, Gulf International Bank, HSBC, RHB Investment Bank Berhad, Société Générale and Standard Chartered Bank. The Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the IsDB Group, was appointed as a Co-Manager.

The IsDB had mandated the joint lead managers on 19 September to organise a series of investor meetings for a roadshow on 23 and 24 September in London. The book-building process began on 24 September with the release of the initial price thoughts of Mid Swap (MS) plus high 50s basis points (bps) area.

According to the IsDB, because of strong demand from investors, the multilateral bank was able to set the guidance at MS+50bps to 55bps the following day. The deal was eventually priced at MS plus 50bps, with an overall profit rate of 1.957%. This compares to IsDB’s similar US$1.5 billion issuance in April 2019 which had a profit rate of 2.843% but was issued at a tighter spread of MS+40bps.

In terms of the final allocation, the distribution was well diversified with 35% allocated to investors in the Middle East, 28% to investors in Asia, 18% to investors in Africa, 18% to investors in Europe and 1% to other investors. “Overall, the deal witnessed strong participation from real money accounts and official institutions, a testament of IsDB’s credit strength, as 69% was allocated to central banks (64% for the April issuance) and official institutions, and 31% to bank treasurers, fund managers and Private Banks,” said the IsDB in a statement.

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.  This comes on the back of the recent affirmation by Fitch Ratings of the IsDB’s Long-Term Issuer Default Rating (IDR) at ‘AAA’ with a Stable Outlook, and the Short-Term IDR at ‘F1+’.  Similarly, Moody’s also affirmed the IsDB’s AAA rating with a stable outlook.

According to Dr. Zamir Iqbal, Vice President, Finance, and CFO of IsDB, the MDB was “very pleased with the outcome of the deal in terms of size, lower pricing and higher number of diversified orders compared to the last US dollar trade in April. We are also happy to see new investors subscribing in the Sukuk. With this deal the IsDB has achieved 80% of its funding plan for the year and we look forward to further mobilizing resources via a EUR public Sukuk and private placements in Q4.”

Indeed, in October 2018 the IsDB issued a debut benchmark Euro-denominated Sukuk issuance amounting to €650 million.  The Sukuk was priced at par at a profit rate of 0.554 per cent, to be payable on an annual basis, equivalent to MS + 20 bps. 

“I would like to thank the IsDB’s member countries and other investors for their continuous support which has further strengthened our relationship and commend the lead managers for delivering a successful deal that fully met our objectives. We hope that this funding will continue to contribute towards extending better financing terms to our member countries to support their developmental needs,” explained Dr Iqbal.

The IsDB plans to raise between US$4-US$5 billion from the capital markets in 2019. The IsDB Board of Governors is keen for the MDB to fully leverage its 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 Trust Certificates are in the process of being listed on Euronext Dublin, NASDAQ Dubai and Bursa Malaysia (under the Exempt Regime).

According to Nasdaq Dubai, this latest US$1.5 billion Sukuk will be the 11th IsDB Sukuk to be listed on its Bourse with a total value of US$13.04 billion.  Nasdaq Dubai is one of the world’s largest exchanges for Sukuk listings with a total nominal value of US$59.2 billion including the IsDB Sukuk, with 55 % of that value coming from non-UAE issuers.

The IsDB, a prolific issuer of Sukuk in the international market, has hitherto issued Sukuk denominated in US dollars, Malaysian Ringgit, UK Sterling, Euro and Singapore dollars, either through the market or through private placement.

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