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ONE SUKUK EVERY YEAR

IDB planning $10bn Islamic bond programme

Riyadh, October 5, 2013

The Saudi Arabia-based Islamic Development Bank (IDB) plans to increase its Islamic bond programme to $10 billion from $6.5 billion, to keep pace with demand for investment-grade paper from the international institution.

An expanded programme would help the AAA-rated bank meet its goal of issuing one sukuk publicly every year and cater to a growing number of investor requests for private placements.

The Jeddah-based lender plans to make the increase official in November subject to clearance from regulators in Britain, where its multi-currency programme is listed, said Hasan Demirhan, director at the IDB's treasury department.

"So far, public issuances have been once in a year but private issuances have been frequently based on the resource requirements of the bank," said Demirhan.

The programme has been expanded twice since it was set up in 2005; close to $7 billion has been issued via 15 sukuk, out of which $6.3 billion is currently outstanding, according to Reuters calculations based on IDB data.

Last year was the busiest for the programme with $1.9 billion issued via five sukuk, four of which were private placements worth a combined $1.1 billion.

This year, the IDB issued a $1 billion, five-year sukuk in June and a five-year, $700 million private placement in March.

The bank, which operates to promote economic development in Muslim countries and communities, has 56 member countries and Saudi Arabia as its largest shareholder with 23.6 percent.

It plans to issue another benchmark-sized sukuk next year, Demirhan said; benchmark-size transactions are at least $500 million.

In May, the IDB more than tripled its authorised capital to $150 billion; it provides financing, loans and technical assistance for development schemes which follow Islamic principles, such as bans on interest payments and pure monetary speculation.

An expanded sukuk programme would help the IDB increase its profile among global investors and secure similar pricing levels to other development banks such as the World Bank and European Investment Bank, which can borrow at slightly lower rates because they are more frequent issuers.

The IDB's June sukuk set price guidance at a spread of 30 basis points over midswaps; a year earlier it priced a sukuk at 40 bps over midswaps. The EIB priced a five-year, 500 million Canadian dollar bond last month at 20 bps over midswaps.

The expanded programme would also help the IDB offer a wider range of maturities to investors in its private placements. Its public sukuk have used five-year tenors, but private placements have also carried other maturities, Demirhan said.

"Private issuance of the sukuk is tailored to the need of the investors and ranged between three to 10 years."

IDB sukuk are highly sought after by Islamic banks since the lender is designated a zero risk-weighted institution by the Basel Committee, the international banking supervisory body; this means its paper can be used to manage capital adequacy on bank balance sheets.

The IDB also has a 1 billion ringgit ($313 million) sukuk programme in Malaysia, where it has issued an aggregate 700 million ringgit in three tranches since 2008.-Reuters




Tags: Saudi | sukuk | Islamic bond | IDB |

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