IsDB Keeps International Sukuk Momentum Going with Second Public Sukuk Issuance in 2022 Raising US$1bn as Investors Chase Quality AAA-rated Papers

The Islamic Development Bank (IsDB), the multilateral development bank (MDB) of the 57-member OIC (Organisation of Islamic Cooperation) countries, successfully priced its second public Sukuk issuance of 2022 when it raised US$1.0 billion through a 5-year issuance in October 2022.

This latest transaction follows the IsDB’s first public Sukuk issuance of 2022 at end April when it raised US$1.6 billion through a similar 5-year issuance. This brings the aggregate Sukuk issuances by the IsDB in 2022 to US$2.6 billion. This compared to 2021 when the multilateral development bank raised an aggregate US$4.6 billion through three issuances in March, May and October respectively.

The IsDB remains the most proactive and prolific issuer of AAA-rated Sukuk in the international market. The Bank is rated Aaa/AAA/AAA by S&P, Moody’s Investors Service and Fitch Ratings – all with Stable Outlook. This latest US$1.0 billion offering was issued by IsDB Trust Services Limited incorporated in Jersey on behalf of the Obligor, the IsDB, and successfully priced under its US$25 billion Trust Certificate Issuance Programme. The transaction was priced at par with a profit rate of 4.747%, payable on a semi-annual basis. In contrast, the April 2022 transaction was priced at par with a profit rate of 3.213%, payable on a semi-annual basis.

IsDB had mandated BNP Paribas, Credit Agricole CIB, Dukhan Bank, Goldman Sachs International, Islamic Corporation for the Development of the Private Sector (ICD), JP Morgan, Mizuho, Standard Chartered Bank and SNB Capital to act as the Joint Lead Managers and Joint Bookrunners for this issuance, and to arrange a series of investor meetings and calls with accounts in the UK, Europe, the GCC, Asia and with Offshore US investors.

The transaction was announced to the markets on Wednesday 19 October with Initial Price Guidance set around 5-Year US SOFR Mid Swap (MS) plus 65 basis points (bps). With an over-subscribed order book, the Bank tightened the guidance by 3 bps on Thursday, 20 October, and finally closed the deal at 5-Year US SOFR MS plus 62 bps, which translated into an overall profit rate of 4.747%.

This is the third IsDB Sukuk transaction based on the Secured Overnight Financing Rate (SOFR) Mid-Swap benchmark, the new global benchmark rate that is being adopted by SSA issuers for pricing fixed rate instruments. The Bank was the first Islamic financial institution to issue a SOFR-linked Sukuk.

In May 2021 it issued its maiden SOFR-linked Sukuk – a 3-year Floating Rate Note (FRN) that raised US$ 400 million from a single investor on a Private Placement basis. That Sukuk was priced at par (100%) and at a mutually agreed coupon payable on a quarterly basis. This was followed by the April 2022 US$1.6 billion SOFR offering.

This latest US$1 billion Sukuk in October 2022, like the previous ones, said the Bank, attracted very 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 top-tier AAA ratings.

In terms of the final allocation, the distribution was well diversified with 51% allocated to Middle East & North Africa, 26% to Europe, 12% to Asia and 11% to Africa and others. Overall, the deal witnessed strong participation from real money accounts and official institutions as well as a number of first-time investors, a testament of IsDB’s credit strength, as 53% was allocated to central banks and official institutions, 45% to bank treasuries and 2% to fund managers, private banks and others.

Following the pricing, Dr. Zamir Iqbal, the Vice President (Finance) and CFO of IsDB, welcomed “such an overwhelming response from investors around the globe. This proves that there is substantial investor demand for high quality paper, especially in the backdrop of increasing market volatility and uncertainties due to the many headline risks. We are thankful to all the investors, especially the new ones who subscribed to our Sukuk for their confidence in IsDB’s AAA-rated paper.”

The proceeds of the issuance, says the IsDB, will be used for its general corporate purposes, and to finance projects under the development mandate of the Bank, which targets poverty alleviation, human development, sustainable agriculture, transport, education, health and water infrastructure, climate action, among others, in its 57 Member States. It also covers initiatives to support the Member Countries’ recovery from the pandemic, promoting food security, socio-economic development as well as climate action, among others.

The IsDB continues to tap the international markets more often than in previous years, partly driven by the on-going impact of the Covid-19 pandemic; the increasing demands from member countries for help towards their post-pandemic economic recovery effort; and the new demands due to the supply chain disruptions relating to food and energy supplies as a result of the Ukraine conflict which has seen food and fuel prices spiral and many OIC Member States like elsewhere faced with a cost-of-living crisis.

The Trust Certificates have been admitted for listing on Euronext Dublin and NASDAQ Dubai.

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