Multilateral Sukuk – IsDB US$1.5bn SOFR Sukuk

Islamic Development Bank Raises US$1.75bn Through its Second 5-Year Public Sukuk Issuance in 2023 Based on the Secured Overnight Financing Rate (SOFR) Mid-Swap Benchmark

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 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 US$1.75 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. This latest transaction was priced at par with a profit rate of 4.906% per annum payable on a semi-annual basis.

Prior to this transaction, the IsDB issued a 5-Year US$2 billion Secured Overnight Financing Rate (SOFR) Sukuk in March 2023 which 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 thus far, the IsDB has raised US$10.95 billion from the international markets through seven Sukuk issuances.

For this latest transaction in September 2023, IsDB had mandated Barclays, BNP Paribas, Dubai Islamic Bank, First Abu Dhabi Bank, Islamic Corporation for the Development of the Private Sector (ICD), J.P. Morgan, Mizuho, NATIXIS 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.

The proceeds of the issuance, according to the IsDB, will be utilized for sustainable development interventions in its Member Countries such as positive climate action, fighting food insecurity and building resilience. The interventions are guided by the Fit-for-purpose 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 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 Realigned 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.

The transaction was announced to the markets on Monday, 25th September, with Initial Price Guidance set at the 5-Year US SOFR Mid Swap (MS) plus 57 basis points (bps) area. With a strong and over-subscribed order book, the Bank further tightened the pricing by 5 bps to finally close the transaction at 5-Year US SOFR MS plus 52 bps, which translated into an overall profit rate of 4.906% per annum payable on a semi-annual basis.

This is the fifth IsDB Sukuk transaction based on the Secured Overnight Financing Rate (SOFR) Mid-Swap benchmark, the new global benchmark rate that is being adopted by 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 and the US$1 billion issuance in October 2022, and the US$2 billion Sukuk in March 2023.

Like the previous IsDB issuances, the transaction, said the Bank, attracted very strong demand from real money accounts looking for both quality and value and official institutions as well as a number of first-time investors, a testament of IsDB’s credit strength and financial position and reaffirmed by its top-tier AAA ratings. In terms of the final allocation, the distribution was well diversified with 65% allocated to Middle East & North Africa, 19% to Asia, 15% to Europe and 1% to US Offshore 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 58% was allocated to central banks and official institutions, 38% to bank

treasuries, 3% to asset manager, fund managers and others and 1% to Corporates.

Following the pricing, Dr Zamir Iqbal, the Vice President (Finance) and CFO of IsDB, commented: “This issuance is another important milestone for us as we continue to build upon success of our prior Sukuk issuances and the growth of our robust balance sheet. We are grateful to IsDB’s Member Countries and all the investors for their trust in IsDB and its mission of sustainable development. We are also thankful to first-time investors who participated in this issuance and we welcome them as partners in sustainable development.”

Mohammed Sharaf, the IsDB Treasurer and Zakky Bantan, Manager of the IsDB’s Capital Markets Division, added: “We are very pleased to have executed the issuance in a volatile market backdrop. The massive investor response reaffrms their confidence in the Bank’s AAA-rated paper. We are thankful to them, especially the new ones, including the Central Bank Community and Bank Treasuries. We would also like to thank the joint lead managers for their efforts in delivering a successful transaction.”

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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