Multilateral Sukuk – IsDB €550m SOFR Public Green Sukuk

IsDB Returns to Euro Market Raising €550m (US$591.1m) Through its Third Public Sukuk Issuance in 2023 Based on the Secured Overnight Financing Rate (SOFR) Mid-Swap Benchmark

This latest offering comes after the MDB successfully priced its second public Sukuk issuance of 2023 – a US$1.75 billion offering on 26 September with a tenor of five years. The IsDB issued its first public Sukuk issuance of 2023 on 6th March when it raised US$2.0 billion through a similar 5-year issuance.

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 €550 million 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 at par with a profit rate of 4.546% per annum payable on a semi-annual basis, which translates into a yield of 5-Year Euro Midswaps (MS) plus 33 basis points (bps).

This compared with the 5-Year US$1.75 billion Secured Overnight Financing Rate (SOFR) offering in September, which was priced at US SOFR MS plus 55 bps, which translates into a profit rate of 4.906% per annum payable on a semi-annual basis. Similarly, the 5-Year US$2 billion SOFR Sukuk in March 2023 was priced at 5-Year US SOFR MS plus 55 bps, which translated into an overall profit rate of 4.598%. This was preceded by two 5-year Sukuk offerings in 2022 – a US$1.6 billion Sukuk in April 2022 which was priced at par with a profit rate of 3.213%, payable on a semi-annual basis, and a US$1 billion Sukuk in October 2022 which was priced at 4.747% payable on a semi-annual basis. For the period 2021-23 to date, the IsDB raised US$10.5411 billion from the international markets through eight Sukuk issuances.

For this latest transaction in November 2023, IsDB had mandated Abu Dhabi Commercial Bank, Crédit Agricole CIB, HSBC, J.P. Morgan, Société Générale and Standard Chartered Bank to act as the Joint Lead Managers and Joint Bookrunners for the 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.

This benchmark size issuance, said the MDB, “marks the return of IsDB in the Euro public market since its debut Green Sukuk issuance that mobilized €1 billion in November 2019. The proceeds of the issuance will be directed towards IsDB commit-ments for sustainable development in its Member States under its Realigned Strategy.

The transaction was announced to the markets on Monday, 6 November, with Initial Price Thoughts (IPTs) set at around 5Y Euro Mid Swap (MS) plus 33 basis bps. With the target benchmark size achieved on the next day with a strong orderbook, the Bank maintained the guidance as is, which translated into an overall profit rate of 3.456%, payable on an annual basis.

In terms of the final allocation, the distribution was well diversified with 58% allocated to Middle East and North Africa (MENA) investors, 34% to Europe, 6% to Africa and 2% to Asia. Overall, the deal witnessed strong participation from real money accounts and official institutions as well as a number of first-time investors, which the MDB stressed is a testament of IsDB’s credit strength. Some 56% of the transaction was allocated to central banks and official institutions, 40% to bank treasuries and 4% to asset managers, fund managers and others.

Following the pricing, Dr Zamir Iqbal, the Vice President (Finance) and CFO of IsDB, commented that “after a hiatus of 4 years, I am delighted with the outcome of our third Euro public Sukuk since 2018. We are thankful to both our anchor as well as new investors for their trust in IsDB’s mission of sustainable development and the support for this transaction.”

Similarly, Mohammed Sharaf, the IsDB Head of Treasury, confirmed that “the investor response was very positive in a volatile market backdrop. This helps us build a strong foundation to achieve our objective of becoming a frequent EUR issuer in the global capital markets.”

The proceeds of the issuance, according to the IsDB, is being utilized for sustainable development interventions in its Member States such as positive climate action, fighting food insecurity and building resilience. The interventions are guided by its Realigned Strategy of the Bank with a stronger focus on green, resilient, and sustainable infrastructure as well as inclusive human development.

The IsDB Sukuk issuances and interventions are driven by the MDB’s Strategic Realigment Strategy 2023-2025, first approved at the Group’s 46th Annual Meetings in Tashkent in Uzbekistan. The Strategy hinges on three overarching objectives: boosting recovery; tackling poverty and building resilience; and driving green economic growth agenda. These objectives will be achieved by focusing the Bank’s interventions on two key pillars over the next three years (2023-2025): (1) developing green, resilient, and sustainable infrastructure; and (2) supporting inclusive human capital development through projects and capacity development initiatives.

Not surprisingly, the above strategy will rely on the Bank’s resource mobilisation activities. The IsDB remains the most proactive and prolific issuer of AAA-rated Sukuk in the international market. But to date it has issued only five Public Green/Sustainability Sukuk in 2022/23 totalling just under US$7 billion.

At the ICMA AGM in Paris in May 2023, IsDB President Dr Muhammed Al Jasser struck an optimistic note on “the Group’s critical role in plugging the huge financing gap through our resources, bringing in co-financiers from the world over, leveraging upon IsDB’s AAA-rating to tap the capital markets through Sukuk issuances.”

As a frequent issuer the IsDB has issued more than US$42 billion since 2005. Dr Jasser has been highly encouraged by the investor response in both the Green Sukuk and Sustainability Sukuk transactions. “We were very pleased to see institutional investors from France, Germany, Japan, and the U.K. participate for the first time. Our Sustainable Finance Framework was assigned a very strong Second Party Opinion, and we also have a solid ESG risk rating,” he added.

But the overall nascent low base for Green Sukuk implies huge growth and sustainability potential on the back of the requisite political and corporate will. Here the rolling out by ICIEC, the multilateral insurer of the IsDB Group, of the Sukuk Insurance Policy as a Third-Party credit enhancement guarantee initially for unrated or below investment grade sovereign issuances could play an important knock-on market driver role especially in unrated and below investment grade member states.

According to Oussama Kaissi, CEO of ICIEC, “At ICIEC, each of our insurance policies, whether the policyholder is a financial institution, specialized company, or contractor, that offers cover against political and commercial risks, can contribute to the flow of Climate Action-related investment, specialized technology and equipment or services into its Member States thereby contributing to the goals of the Paris Climate Agreement and UN SDG Agenda.”

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; the on-going 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; and the socio-economic impacts of climate change, food insecurity and the global economic shocks of high inflation, increasing sovereign indebtedness and unemployment.

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