Moving away from LIBOR: Islamic Development Bank issues SOFR-linked sukuk

IsDB' s debut SOFR-linked Sukuk is a 3-year Floating Rate Note (FRN) that raised $400mln from a single investor on a Private Placement basis

  
An engraved logo of the Islamic Development Bank Group is seen at the door of the bank in Jeddah, Saudi Arabia May 31, 2018. Picture taken May 31, 2018.

An engraved logo of the Islamic Development Bank Group is seen at the door of the bank in Jeddah, Saudi Arabia May 31, 2018. Picture taken May 31, 2018.

REUTERS/Reem Baeshen

The Jeddah-based Islamic Development Bank (IsDB) has issued its first-ever Secured Overnight Financing Rate (SOFR)-linked sukuk in the global capital markets.

The Bank, rated Aaa/AAA/AAA by Moody’s, S&P and Fitch (all stable outlook), successfully closed the debut SOFR-linked issuance, its second sukuk of the year, under its recently updated $25 billion Trust Certificate Issuance Programme, which now incorporates various new risk-free rate mechanics.

IsDB is a multilateral development financial institution with 57 member countries and a mandate of delivering social and economic development in member countries and Muslim communities worldwide.

The Secured Overnight Financing Rate (SOFR) will be the new global benchmark rate, replacing the London Interbank Offered Rate (LIBOR) that is being phased out by June 2023. The SOFR is a broad measure of the cost of borrowing cash overnight collateralized by US Treasury securities.

IsDB’ s debut SOFR-linked Sukuk is a 3-year Floating Rate Note (FRN) that raised $400 million from a single investor on a Private Placement basis.

Dr. Bandar Hajjar, President of IsDB, said: “IsDB continues to stay committed to innovation and this is yet another example. The global shift away from LIBOR will undoubtedly have an impact on IsDB operations in our Member Countries, and I am very pleased to witness this successful execution by the IsDB Treasury as part of IsDB’s high level plan to make our way through this transition at the early stages.”

With a AAA-rating assigned by S&P, this is the first-ever AAA-rated SOFR-linked Sukuk in the Islamic capital market. It was priced at par (100%) and the mutually agreed coupon is payable on a quarterly basis.

“With almost $22 billion in sukuk outstanding, it is imperative for IsDB to plan for ensuring a smooth transition away from LIBOR and offer the new instruments to investors who are important stakeholders in the transition," Dr. Zamir Iqbal, the Vice President (Finance) and CFO of IsDB

(Writing by Seban Scaria ; editing by Daniel Luiz)

 seban.scaria@refinitiv.com

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