The Islamic Development Bank, a Saudi Arabia-based multilateral lender, plans to sell $1 billion of Islamic bonds to fund development projects in its member countries, Vice President Abdul Aziz Al Hinai said today.
The five-, seven- and 10-year sukuk, part of the IDB’s $3.5 billion Medium-Term Note program, will be issued in the fourth quarter and listed in London and Kuala Lumpur, Al Hinai told reporters in the Malaysian capital after registering a separate ringgit issuance on the local exchange. CIMB Group Holdings Bhd. and four international banks will manage the sale, he said.
Global sales of sukuk will pick up in the second half of the year and rise above the total in 2009, as more companies and governments tap the market, said Badlisyah Abdul Ghani, head of CIMB’s Islamic banking unit. Issuance will climb to as much as $25 billion from about $20 billion last year, he said.
“The market is buzzing with new liquidity,” said Badlisyah. “We have seen announcements in the Saudi market where corporate is coming in, announcing that they will be doing riyal sukuk. There are companies in Malaysia coming in very aggressively in the second half and three are coming in within this month. So the pipeline is healthy.”
Saudi Electricity Co., the Arab world’s largest utility company, may issue sukuk in 2011 after a sale in April of 7 billion riyal ($1.9 billion), Executive Director of Treasury Fahad Alsudairy said on May 18.
Khazanah Nasional Bhd., Malaysia’s state investment agency, sold S$1.5 billion ($1.1 billion) of five- and 10-year Islamic notes on Aug. 11, and the nation’s biggest mortgage company Cagamas Bhd. sold 1 billion ringgit ($318 million) on Aug. 19.
The IDB, which has 56 member countries including Egypt, Saudi Arabia and Turkey, is financing up to $8 billion of projects in 2010, said Vice President Al Hinai. The proceeds from the sukuk will be used to mostly finance infrastructure development of $3 billion to $3.5 billion, projects that “are highly needed for the growth of our member countries,” he said. The sukuk are rated AAA by Standard & Poor’s, according to a statement issued by the bank today.
IDB’s ringgit sukuk listing in Malaysia, the world’s largest market for Islamic bonds, adds to those completed by Nomura Holdings Inc. and General Electric Capital Corp. The lender has sold 400 million ringgit under the 10-year, 1 billion ringgit sukuk program so far, and $1.1 billion under the dollar plan, Al Hinai said.
‘New Asset Class’
Islamic finance transactions are based on the exchange of asset flows rather than interest to comply with the religion’s Shariah principles. Shariah-compliant notes returned 3.8 percent this quarter, up from 0.8 percent in the previous three months, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.“
Islamic finance is a new asset class that has the potential to bring new economic growth to our member countries,” Al Hinai said. “The potential for the growth of Islamic finance is clear. It is essential for all of us to look beyond the current global financial turbulence and treat the development of Islamic finance as an investment for the future.”