IsDB Raises US$2bn Through its Fourth Global SOFR-Linked Sukuk Under its Strategic Realignment Strategy 2023-2025 Focussing on Green, Resilient, and Sustainable Infrastructure and Human Development

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 2023 when it raised US$2.0 billion through a 5-year issuance on 6th March 2023.

The IsDB Group, which is holding its 48th Annual Meetings in Jeddah in May 2023 under the patronage of the Government of Saudi Arabia under the theme ‘Partnerships to Fend off Crises,’ has embarked on a 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.

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. The Bank is rated Aaa/AAA/AAA by S&P, Moody’s Investors Service and Fitch Ratings – all with Stable Outlook. This latest US$2.0 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 4.598% per annum payable on a semi-annual basis.

Prior to this transaction, the IsDB last issued 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$9.2 billion from the international markets through six Sukuk issuances. For this latest transaction in March 2023, IsDB mandated BNP Paribas, Citi, Dukhan Bank, Emirates NBD, HSBC, Islamic Corporation for the Development of the Private Sector (ICD), SMBC Nikko, 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.

The transaction was announced to the markets on Monday 6th March, with Initial Price Guidance set around 5-Year US SOFR Mid Swap (MS) plus 60 basis points (bps). With a strong and over-subscribed order book, the Bank further tightened the guidance by 5 bps to finally close the transaction at 5-Year US SOFR MS plus 55 bps, which translated into an overall profit rate of 4.598%.

This is the fourth 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.

This latest US$2 billion Sukuk in March 2023, like the previous ones, 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, as 62% was allocated to central banks and official institutions, 37% to bank treasuries and 1% to fund managers, private banks and others.

In terms of the final allocation, the distribution was well diversified with 70% allocated to accounts in the Middle East & North Africa, 15% to Asia, 8% to Europe and 7% to Africa and others.

The proceeds of the issuance, according to the IsDB, will be utilized for its general corporate purposes, which includes extending project financing to its member countries for sustainable development including strengthening food security, climate action and building resilience. This will be implemented under the IsDB’s fit-for-purpose Realigned Strategy with a sharper focus on green, resilient, and sustainable infrastructure as well as inclusive human development.

Following the pricing, Dr Zamir Iqbal, the Vice President (Finance) and CFO of IsDB, welcomed the success of “our first transaction of the year. The outcome met our objective of building on the success of our prior issuances. This is a testament of the robust balance sheet of IsDB and we are confident of sustained demand for our Sukuk again when we return to the markets later in the year. We are very thankful to IsDB’s Member Countries and all the investors for their trust in IsDB and its mission of sustainable development. We also welcome our new investors who subscribed to IsDB Sukuk for the first time as our partners in development.”

Similarly, Mohammed Sharaf, the IsDB Treasurer and Zakky Bantan, Manager of the IsDB’s Capital Markets Division emphasised that the US$2 billion transaction was successfully closed “despite looming headline risks and increasing market volatility.”

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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