International Finance CorporationInternational Finance Corporation

IFCIFC

This, together with Dubai’s current $2 billion sukuk issuance program, and Bahrain’s $750 million sovereign sukuk issuance and Saudi Electricity Company’s offering earlier this year, are further indications of a steadily recovering global sukuk market, which is currently led by issuers out of Malaysia and Asia.

The IFCIFC, in fact, has been more proactive than all the above governments in raising funds from the Islamic financial market, and even set up the first-ever independent, specialized Shariah-compliant housing finance company in Saudi Arabia in April 2007 with Arab National Bank, Dar Al-Arkan Real Estate Development Company and Kingdom Instalment Company. IFC’s Saudi Home Loans Company (SHLC), wasSaudi Home Loans Company (SHLC), was designed to promote home ownership by making housing finance affordable for the country’s middle-and-lower-income residents.

SHLC’s specific market mission is to offer these home buyers Shariah-compliant housing finance options to buy apartments, villas and land. The company of course is still waiting for the legal certainty of a Saudi mortgage law which was supposed to have been adopted by the end of 2008 and which, according to Saudi real estate experts, would probably be adopted before the end of this year or in early 2010.

But, aside from the housing market in the Middle East, for which there is huge and growing demand because of the demographics of the region in that more than half of the population are under the age of 30 years old, the aim of the IFCIFC Hilal Sukuk is to help develop the region’s nascent sukuk market and encourage other sovereign and corporate issuers to engage with member countries of the Gulf Cooperation Council (GCC).

If ever the Saudi Minister of Finance, Ibrahim Al-Assaf, wants a reason for issuing a debut benchmark sovereign sukuk issuance then this is it. Al-Assaf recently told a local news channel that the Kingdom has no plans to issue sovereign bonds — whether conventional or Islamic. “Government bonds are issued when there is a need for them. Thank God, lately there has been no need to issue bonds or sukuk,” he reportedly told Al-Arabiya news channel.

The IFCIFC Hilal Sukuk is a US dollar-denominated $100 million non-amortizing issue with a five-year maturity, and will be listed on the Nasdaq Dubai and Bahrain stock exchanges.

“The sukuk is an innovative way for IFCIFC to create opportunities for Islamic investors who want to make a positive social impact. It also supports the World Bank Group’s goals to integrate the Arab world into the global economy and offer greater opportunities for its people,” confirmed Lars Thunell, IFCIFC executive vice president.

The IFCIFC sukuk will support a pipeline of Islamic finance projects in key sectors such as health, education and infrastructure. Sukuks are investment certificates with undivided ownership share in underlying Sharia-compliant assets. As such a separate special purpose vehicle (SPV) will issue the IFCIFC sukuk and warehouse the underlying assets.

Participants in the IFCIFC sukuk offering include HSBC Amanah, Dubai Islamic Bank, Kuwait Finance House Bahrain, and Liquidity Management House. “We are grateful to the Shariah scholars, our partners at the Dubai and Bahrain exchanges, and the syndicate for guiding us through this complex process, and hope that the model will facilitate the process for other issuers to enter the Sukuk market,” said Nina Shapiro, IFCIFC vice president for Finance and Treasurer.

Although the IFCIFC says that it is the first non-Islamic financial institution to issue a sukuk for term funding in the GCC region, both Investcorp and Saudi Hollandi Bank, which are conventional banks, have raised financing through sukuk and other Islamic financing facilities. The Hilal Sukuk, which is rated Aaa by Moody’s Investors Service, the international rating agency, says the IFCIFC is also the first sukuk to be listed and cleared in the GCC market only.

Indeed, this is not the first foray of the IFCIFC into the sukuk market. In 2004, the IFCIFC issued its first sukuk, a $132 million three-year bullet sukuk, which was denominated in the local Malaysian currency, the ringgit.

The commitment of the IFCIFC to Islamic finance in recognition of the growth of the industry and demand for such products in the GCC and MENA region is further underlined by the fact that last year the IFCIFC established its own in-house Islamic Finance Working Group that aims to develop a more strategic approach to the corporation’s Islamic finance activities.

The efforts of the working group and the expansion of IFCIFC field offices in the Middle East and North Africa region confirms the IFCIFC have contributed to a committed portfolio of over $190 million in loans and equity in the region. In addition, the IFCIFC says that it has channelled $14.5 billion of new investments in fiscal 2009 to help channel capital into developing countries during the global financial crisis.

Similarly, two years ago, the IFCIFC part underwrote the $210 million Islamic mortgage securitization of Tamweel, the Islamic mortgage provider in the UAE. The transaction was a collaboration between Tamweel PJSC, the issuer; the IFCIFC, the structuring investor and Emirates National Securitization Corporation, the structurer.

The IFC’s role helped Tamweel obtain an important alternative source of funding as well as a Shariah-compliant fixed income investment product for its GCC-based and other international investors.

By Mushtak Parker

© Arab News 2009

 

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