Groundbreaking SOFR-linked Sukuk Issued by the Islamic Development Bank
Jeddah, Kingdom of Saudi Arabia, April 2021 – The Islamic Development Bank (IsDB – the Bank) 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 US$ 25 billion Trust Certificate Issuance Programme, which now incorporates various new risk-free rate mechanics.
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 US$ 400 million from a single investor on a Private Placement basis. The transaction is “another pioneering effort of IsDB as the Sukuk market leader in the Islamic capital market”, said Dr. Bandar Hajjar, President of IsDB.
He further stated: “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.
Following the successful closing of the transaction, Dr. Zamir Iqbal, the Vice President (Finance) and CFO of IsDB, commented: “We are delighted to achieve another major milestone as a Sukuk market leader. With almost US$ 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. We are very grateful for the investor’s confidence in IsDB for this transaction and would like to thank the parties involved in making this a successful execution.”
Dr. Yasser Gado, the IsDB Treasurer added: “As a frequent Sukuk issuer, this is a breakthrough transaction for IsDB in terms of timing, pricing, Sukuk offerings, investor diversification, as well as testing our modus-operandi for a post-LIBOR landscape. We intend to continue this momentum in order to secure low-cost funding, strengthen our standing in a new market reality and keep promoting Sukuk as an alternative asset class for sustainable development.”
Zakky Bantan, the Manager of Capital Markets stated: “We are pleased to execute a successful debut transaction in these market conditions. We do anticipate further SOFR-linked Sukuk issuances in order to build IsDB’s SOFR-linked curve. We will also continue our efforts for other risk-free rate issuances soon.”
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.