LONDON: The Jeddah-based Islamic Development Bank (IDB) is gearing up for its latest sukuk offering under its Medium Term Note (MTN) or Trust Certificate Issuance Program, which was officially increased this month from $1.5 billion to $3.5 billion.
The IDB, according to Mohamed Tariq, senior adviser to the President Ahmad Mohamed Ali, was poised to go to the international financial markets in September this year to raise in excess of $850 million in a sukuk issuance under its $3.5 billion MTN Program. September will be a difficult month because it coincides with the end of the holy month of fasting, Ramadan, and the subsequent Eid holidays.
In Kuala Lumpur last week, Abdul Aziz Al-Hinai, vice president, finance, IDB, confirmed that the IDB plans to go to the market in the last quarter of 2010 to raise $1 billion through a sukuk issuance of 5, 7 and 10-year tenors and which would be listed on the London Stock Exchange and the Bursa Malaysia.
Another sign that the IDB is gearing up to an issuance is the reaffirmation on Aug. 25 by international ratings agency, Fitch Ratings of its AAA, the rating of the IDB Trust Service Limited's $3.5 billion MTN Program which benefits from a liquidity facility provided by the IDB. The rating affirmation follows the IDB's announcement that it has increased the ceiling of the program to $3.5 billion from $1.5 billion in August. The program's rating is supported by the IDB's long-term issuer default rating (IDR) of AAA with a stable outlook.
Another international rating agency, Moody's Investors Service, last month had already reaffirmed for a fifth consecutive year the Islamic Development Bank's Aaa long term and P-1 short term foreign currency issuer rating with a stable outlook.
Moody's stated that the IDB's rating is strongly supported by the commitment of its member countries, and highlighted that the capital base of the bank is strong, its operational assets continue to perform well, it has a high level of liquidity and very low level of debt. Moody's concluded that the bank's risk profile is likely to remain healthy over the medium term.
At the same time the IDB is looking at a number of private placements of local currency sukuk even in non-member countries such as a sterling issue in the UK, or a HK Dollar issue in Hong Kong. The major challenge is for the productive use of the proceeds of such issuances especially good projects. The IDB have already successfully issued such local currency sukuk in Malaysia and in Singapore.
In fact, the IDB last week also listed its local currency RM1.0 billion Medium Term Note (MTN) Program on Bursa Malaysia. The IDB launched the above Program in Malaysia in 2008 and issued the first local currency sukuk of RM400 million under the program on a fixed rate basis for a 5-year tenor. The proceeds raised from the sukuk issued under this MTN Program will be used for general corporate purposes relating to IDB's business activities in Malaysia and the region.
The IDB is the first MDB to list its ringgit sukuk MTN Program on Bursa Malaysia. The rinngit sukuk is also the debut local currency issuance by the IDB anywhere. The sukuk under the program are issued through the IDB's special purpose vehicle (SPV), Tadamun Services Berhad. The overall RM1.0 billion MTN Program has a tenure of 10 years and is rated AAA by Standard & Poor's, reflecting the institutional rating of the parent, the IDB Group.
Yusli Mohamed Yusoff, chief executive officer of Bursa Malaysia emphasized at the listing ceremony in Kuala Lumpur that the he would like to see more issuers to follow the IDB's footsteps "and take advantage of the opportunities and benefits that Bursa Malaysia can offer for fund raising activities. There is a growing interest for foreign issuers to list Shariah financial instruments on the Malaysian market."
The IDB's Ringgit MTN Program is listed under the exempt regime basis and is therefore not quoted or traded on the exchange. This latest listing brings the total volume of sukuk programs listed on Bursa Malaysia to $21.7 billion, comprising 16 sukuk listed by 14 issuers, of which three are foreign issuers.
Al-Hinai emphasized "The listing of the IDB's MTN Program on Bursa Malaysia is a testament of our commitment to support the Islamic finance market, in this case, the Islamic debt capital market in Malaysia."
Badlisyah Abdul Ghani, executive director and chief executive officer, CIMB Islamic Bank, the listing adviser to the IDB MTN Program, is confident that more issuers will list their sukuk on Bursa Malaysia. But he also hopes that more foreign issuers would issue sukuk out of Malaysia, as it has arguably the best capabilities and expertise, backed by the most comprehensive and sophisticated Islamic debt capital market in the world.
By MUSHTAK PARKER
© Arab News 2010
