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AMMAN: The Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Jeddah-based Islamic Development Bank, is very proud to support Jordan’s plans to provide an alternative to conventional bonds, said its CEO Khaled Al Aboodi.
His remarks came as Jordan closed its inaugural local currency sukuk. The debut sovereign issuance was more than three-times oversubscribed. The amortized Ijarah-based sukuk has a tenor of five years and expected profit rate of 3.01 percent.
The landmark sovereign issuance marks a major step to develop the Islamic Jordanian capital market as well as provides Shariah-compliant banks with an investment avenue. Jordanraised Jordanian Dinar JOD 34 million ($47.9 million) maturing in 2021.
The Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Jeddah-based Islamic Development Bank, acted as Transaction Technical Support and Adviser.
The sovereign issuance is part of comprehensive joint-Technical Assistance (TA) Package provided by Japan International Cooperation Agency (JICA) and ICD.
The TA also provided external practical capacity-building trainings for government employees behind the sukuk transaction.
“The sovereign issuance is of great significance for the Kingdom’s full-fledged four Islamic banks, because it will give them a badly needed tool to manage their excess liquidity (estimated to be 1.4 billion dinars),” said Omar Malhas, minister of finance.
“As part of the fiscal reform program implemented by the Ministry of Finance, we aim to widen the use of sukuk in the short-term. The sukuk will play a critical role in increasing the effectiveness of the financing mechanisms of government needs to cover the budget deficits.” he added.
“The sukuk was priced inside Jordan’s existing conventional bond’s curve. This led to lowering the cost of borrowing for the Kingdom,” said Malhas.
“This is rarely seen for first time sovereign issuers especially in the sukuk market”, he added.
ICD’s Chief Executive Officer Khaled Al-Aboodi said: “As a development finance institution, our ultimate goal is to assist member countries in creating sustainable local Islamic Capital Markets Programs. After successfully closing the debut issuance, and provided there is availability of sufficient assets for structuring purposes, the Kingdom would be able, on its own, to issue recurring Ijarah sukuk transactions, with various maturities, by using the same documentation and processes.,” he added.
“The achievement of our joint-technical Assistance is significant as for enabling diversification of the financing methods of the Government of Jordan, which has been generous enough to host large influx of refugees. The sukuk, Islamic financing instrument, made it possible for the government to finance itself more competitively compared to the conventional instruments. At the same time, the Islamic banks in Jordan were also happy for such investment tool to be introduced in the Market where such instrument did not exist.”JICA’s Director of the Middle East Division 2, Tetsutaro Kon said. “By now, the Jordanian government has acquired the needed technical knowledge and practical experience which will empower them to issue further sukuk on their own.” he added.
Jordan (originator of the issuance) has set up a wholly owned special-purpose vehicle (issuer) in Amman. The proceeds of the issuance will be utilized for development purposes. The Central Bank of Jordan is the Issuance Manager as well as the Paying Agent.
In October 2014, ICD and JICA signed a Memorandum of Understanding (MoU) to set out a framework for collaboration in the development of Islamic Finance industry.
In particular, ICD and JICA will cooperate in supporting the development of the Islamic money market and international capital market for the countries of common interest.
The MoU includes establishment of platform for international dialogue on Islamic Finance as a potential tool for inclusive and sustainable growth.
Cooperation under the MoU will allow the two institutions to achieve synergies and to leverage their respective core competencies and comparative advantages.
JICA is one of the world’s largest bilateral aid agency whose mission is to address global agenda such as climate change, infectious diseases, etc, reduce poverty through equitable growth, improve governance in various types of institutions, and achieve human security.
Its main services are to provide technical assistance, concessional official development assistance (ODA) loan and grant aid, covering areas from large-scale infrastructure to grassroots projects.
© Arab News 2016
