Islamic Development Bank (IDB) plans to launch a $1.5 billion Sukuk MTN (medium-term note) program, Moody's Investors Service said Wednesday. Moody's rated IDB's bond program at Aaa, with a stable outlook. The bank's treasurer Mohammad Tariq was quoted in in July as saying that the bank will most likely issue $500 million to $1 billion worth of Sukuk, or Islamic bonds, in the first week of September. The bank will start roadshows in the Middle East, Far East and Europe in the last week of August, he added. “The net proceeds of the issue of such certificates will be used to purchase a portfolio of Sukuk assets which may comprise Ijara assets, Murabaha contracts, Istisna'a contracts and Islamic Development Bank's investments in equity and Sukuk certificates,” Moody's said in a statement. HSBC, Deutsche Bank and BNP Paribas are lead arrangers with Malaysia's CIMB and Brunei Islamic Bank co-arrangers for the sukuk. The triple-A rated lender plans to issue the Sukuk as part of a bond program to soften the impact of the financial downturn on its members, which include some of the world's poorest nations. State and corporate issuers in the Gulf, the world's largest oil exporting region, have raised more than $10 billion by issuing bonds over the last five months. Under the proposed Sukuk structure, trust certificates “certificates” will be issued by IDB Trust Services Limited, a Jersey-based finance vehicle. Moody's regards the certificates as senior unsecured obligations, without any preference or priority, among all trust certificates of the same series and with all other present and future trust certificates. The bank's Aaa rating was assigned in June 2006. Although the weighted average sovereign credit quality of the IDB's 56 member countries is lower than other Aaa-rated MDBs (the IDB has no Aaa-rated members), IDB members are strongly committed to the organization. This was illustrated by a decision in May 2006 to double the Bank's subscribed capital and increase its paid-in capital by around 50 percent over a five-year period. More recently, in June 2008, as a consequence to allow one more member country to have a permanent seat in the Board of Executive Directors, the Board of Governors voted to raise the bank's subscribed capital by a further 7 percent and paid-up capital by 10 percent (86 percent of the increase in paid-up capital is payable over 5 years and the rest during the following 5 years). Despite a risky operating environment, inherent in its role as a development bank, the IDB's operational assets continue to perform well, with a very low level of impairment. Moreover, the most risky portion of the bank's operational assets (those extended to the poorest member countries on a concessional basis) will gradually be transferred to a new poverty reduction fund (the Islamic Solidarity Development Fund or ISDF) that is financially separated from the bank. This should raise the bank's profitability and enhance its risk profile. The bank enjoys a high level of liquidity and a very low level of debt, partly because of the Islamic, asset-based nature of its operations that is unique among MDBs. The IDB periodically issues Sukuk in part to help develop the global Islamic financial market.
