Prolific IsDB Continues to Consolidate International Sukuk Issuance with Latest US$1.5bn Offering as MDB Plans to Raise US$5bn from Markets in 2019

The Islamic Development Bank (IsDB), the multilateral development bank of the OIC countries, successfully priced a US$1.5 billion, 5-year Trust Certificates (Sukuk) transaction on 21 April 2019, the first public issuance by the Bank thus far this year.

The Sukuk was issued by IsDB Trust Services Limited under the IsDB’s US$25 billion Trust Certificate Issuance Programme and, according to the Bank, the transaction was priced at par at 2.843 per cent per annum, to be payable on a semi-annual basis.

The IsDB mandated Crédit Agricole CIB, First Abu Dhabi Bank, Emirates NBD Capital, Gulf International Bank, HSBC, J.P. Morgan, Natixis and Standard Chartered Bank as the Joint Lead Managers and Bookrunners in early April to arrange investor meetings in the UK, Europe, GCC and Asia, starting on 15 April in London.

The book-building process began on 16 April with the initial price guidance of Mid Swap (MS) plus mid to high 40 basis points (bps). The strong demand from investors allowed the IsDB to set the final price at MS + 40bps, with an overall lower profit rate compared to IsDB’s last such issuance in September 2018 issuance, which had a profit rate of 3.389 per cent for the same initial maturity, which in turn corresponds to a spread of MS plus 32 bps.

In October 2018 the IsDB also 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. 

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.

“The ability of IsDB to issue a sizeable benchmark with price inside its secondaries level with more than 22 per cent allocated to new investors is a clear testament to IsDB’s strong credit and financial position, reaffirmed by its AAA ratings. The transaction has also witnessed an increase in the number of investors by 15 per cent compared to the last US$ public trade in September 2018, in addition to an increase in the size of issuance to US$1.50 billion from an average of $1.25 billion in the last three years,” stressed the IsDB.

In terms of the final allocation, the distribution was well diversified with 82 per cent allocated to EMEA, 17 per cent to Asia, and 1 per cent to others, respectively. “Overall the deal saw strong participation from real money accounts and official institutions providing credence to IsDB’s credit strength. As such 64 per cent was allocated to central banks, followed by 17 per cent to banks, 20 per cent to pension funds and fund managers,” the IsDB stated.

According to Dr. Zamir Iqbal, CFO of IsDB, “the deal met our objectives for the transaction to continue building on the success of our prior deals, and we are happy to see new investors subscribing in the Sukuk. We will continue the hard work to achieve even better results in the future, such as achieving lower overall pricing for Sukuk.”

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 multi-lateral development bank to fully leverage its above ‘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.

The Trust Certificates are listed on the London Stock Exchange, NASDAQ Dubai and Bursa Malaysia (under the Exempt Regime). 

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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