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IsDB Keeps International Sukuk Momentum Going with US$1.6bn First Public Sukuk Issuance in 2022 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 first public Sukuk issuance of 2022 when it raised US$1.6 billion through a 5-year issuance at end April.

The IsDB is the most proactive and prolific issuer of AAA-rated Sukuk in the international market. In 2021 the MDB raised an aggregate US$4.6 billion through three issuances in March, May and October respectively.

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 3.213%, payable on a semi-annual basis.

In contrast, the IsDB 5-year US$2.5bn Sustainability Sukuk issued in March 2021 – its single largest ever volume – was priced at a profit rate of 1.262% payable on a semi-annual basis and a yield of Mid Swap (MS) plus 33 basis points. The US$1.7 billion Sukuk issued in October 2021 was priced at par with a profit rate of 1.435% and a yield of MS plus 25 basis points, payable on a semi-annual basis.

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 prices spiral and many OIC Member States like elsewhere faced with a cost-of-living crisis.

IsDB President, Dr. Muhammad Al Jasser, following the pricing, not surprisingly was pleased with the successful closing of the Bank’s first Sukuk issuance of the year, especially in the context of the state of the current global markets. “As the IsDB continues to support the full recovery of its Member States from the pandemic, mobilizing market resources through Sukuk remains a core component of our strategy. We are very thankful to the investor community for placing their trust in IsDB’s mission of sustainable social and economic development,” he added.

The IsDB mandated a consortium of regional and international banks to handle this first Sukuk transaction in 2022 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 Citi, Dubai Islamic Bank, HSBC, KFH Capital, NATIXIS, SMBC Nikko, Société Générale, SNB Capital and Standard Chartered Bank.

The IsDB, rated Aaa/AAA/AAA by S&P, Moody’s and Fitch (all with a Stable Outlook) confirmed that the transaction is also the MDB’s first public Sukuk issuance 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 did issue a maiden 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, in May 2021. That Sukuk was priced at par (100%) and at a mutually agreed coupon payable on a quarterly basis.

This latest US$1.6 billion SOFR offering, says 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.

The transaction was announced to the markets on Wednesday, 20 April, and the Initial Price Thoughts (IPTs) were set at the 5-Year US SOFR MS plus 60 basis points area. Due to substantial investor demand for high quality paper, the Bank was able to land at 5Y US SOFR MS plus 50 bps, tightening by more than 16% between initial announcement and closing. This translated into an overall profit rate of 3.213%, with no new issue concession incurred.

In terms of the final allocation, the distribution was well diversified with 63% allocated to Middle East and North Africa, 25% to Asia, and 12% to Europe. Overall, the deal witnessed strong participation from real money accounts and official institutions as well as a number of first-time investors, a testament to IsDB’s credit strength, as 68% was allocated to central banks and official institutions, 28% to bank treasuries and 4% to fund managers, private banks and others.

The proceeds of the issuance, says the IsDB, will be used 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.

Dr. Zamir Iqbal, Vice President (Finance & Administration) and CFO of IsDB, is confident that “the landmark issuance helps us to maintain momentum for leveraging on the Sukuk instrument to raise capital for the pressing socio-economic development needs of our Member States who are still recovering from the aftermath of the pandemic. We would like to record our gratitude to all investors, especially the new ones who participated in this transaction for their consistent faith in our AAA-rated paper, which not only provides best-in-class risk-adjusted returns but also a strong development impact on the ground in our Member States. We look forward to their continued support when we return to markets later in the year.”

The participation of new investors is important. The IsDB Group has been trying to expand its investor universe while maintain its anchor investors. According to Mohamed Hedi Mejai, Acting Director, IsDB Treasury Department, the Bank was pleased “to have achieved the milestone of the first Sukuk issuance of the year, especially in terms of size, credit spread and a very strong orderbook. We are very grateful to our investors, especially our anchor investors, who reaffirmed their confidence in IsDB credit. We are delighted to have new investors participate in this transaction and we will continue our efforts to raise more awareness of the Sukuk instrument in new regions to further expand our investor base.”

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

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