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IDB to issue $600 million sukuk bond

Jeddah, May 26, 2011

The Islamic Development Bank (IDB) plans to increase its $3.5 billion sukuk programme to as much as $8 billion and issue a sukuk bond worth $600 million by year end, its vice president said.

Abdul Aziz Al Hinai said $2.9 billion of the current programme had been issued and the rest would be out by December 31, adding that the IDB was studying how large the programme would become.

'We are working on extending the programme to over $5 billion ... the total size could be five, six or $8 billion,' he was quoted as saying in a report in our sister newspaper Gulf Daily News (GDN).

IDB issued a $750 million five-year sukuk, or Islamic bond, at par with a 2.35 per cent semi-annual profit rate.

'We feel the appetite was good. We were offered more than we wanted and we took what we wanted,' Al Hinai said.

Since the programme began in 2005, IDB has made four private placement sukuks and issued four public sukuks all of which were ijara-based. Ijara sukuk involves a transfer of tangible assets - most commonly real estate - from one party to the next, as Islamic law does not allow for debt or interest payments.

'We will not be limiting our future sukuk to the current structure and we will be developing it,' Al Hinai said.

'There could be in the future mudaraba sukuk or other forms.'

Under mudaraba, a bank provides capital for a project while an entrepreneur manages the deal. The profits are split according to a pre-determined ratio and the bank bears any monetary losses that arise.

'I believe 2011 will witness another flourishing year for sukuk issuance. There was a slowness in 2009 and 2010 due to the financial crisis,' he said.

Tags: Saudi Arabia | investment | finance | Islamic Development Bank | sukuk bond |

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