|Trust Certificate Issuance Programme (Base Prospectus)|
|Supplement Base Prospectus|
The Islamic Development Bank (IDB) is a Supranational Developmental Bank, established in 1975 with its headquarter located in Jeddah, Saudi Arabia. IDB is owned by 56 member countries of the Organization of Islamic Cooperation (OIC) that span across the Middle East, Africa, Asia and Europe. The IDB’s primary objective is to foster the economic development and social progress of member countries and Muslim communities in non-member countries. more...>>
IDB is rated AAA by the three major Rating Agencies (Standard & Poor's, Moody's, and Fitch). It has been designated as a Zero Risk Weighted Multilateral Developmental Bank (MDB) by the Basel Committee on Banking Supervision and the Commission of the European Communities. In the recent rating exercise, Rating Agencies highlighted the IDB's key strengths as follows:
Sukuk commonly refers to the Islamic equivalent of bonds which
essentially falls under fixed income securities definition. Since it
perfectly fits into the bond infrastructure and system, Sukuk has
witnessed exponential growth within short period of time. However, as
opposed to conventional bonds, which merely confers ownership of a debt
without any underlying assets, Sukuk grants the investor a share of
profit from an income generating asset or project, along with the
investment risk. As such, Sukuk securities should adhere to the
Shari’ah principles, which prohibit the charging or payment of interest
against the invested amount but rather sharing the return on the
The emergence of Sukuk has been one of the most significant developments in Islamic capital markets in recent years. Put simply, Sukuk instruments act as a bridge. They link their issuers, primarily sovereigns and corporations in the Middle East and Southeast Asia, with a wide pool of global investors, many of whom are seeking to diversify their holdings beyond traditional asset classes.
Depending on the underlying assets or projects, sukuk could come in various forms and structures which fit both the Issuers’ requirement and Investors’ appetite. Both domestic and foreign investors buy Sukuk having various structures approved by Shari’ah boards of Islamic scholars.
Back to TopCapital Markets Objectives
The Islamic Development Bank (IDB) is a regular issuer of Sukuk in
the global markets. Except for its debut sukuk issued in 2003, at
present all IDB Sukuk are issued under its Medium Term Notes program
which is registered and approved by the Financial Services
Authority/United Kingdom Listing Authority (UKLA). The MTN program
requires periodical renewal which must be cleared by the UKLA before
subsequent sukuk issuance being made within the approved program limit.
The IDB sukuk is currently listed on the London Stock Exchange, Bursa
Malaysia (Exempt Regime), Nasdaq Dubai and Borsa Istanbul. The MTN
program was established in 2005 with the initial size of US$ 1.5
billion initially and in tandem with its operational growth projection
and demand, it has been upsized several times to reach the level of US$
10 billion now. The MTN Program is also rated “AAA” by the
international rating agencies.
On the offering format, thus far the IDB Sukuk is offered in the Reg S format and is opened for subscription to investors in many countries globally. Sovereign Wealth Funds, Central Banks, Pension Funds, Insurance Companies, Sukuk Funds and Investment Banks are the main investors of the IDB Sukuk. IDB Sukuk is rated triple-A by all the three rating agencies.
Sukuk issued by the IDB under the MTN Program are denominated in various currencies, maturity of more than one year and issued in the form of Public Issuance and Private Placement. The likely tenure of a Sukuk could be 5-7 years and could be issued in fixed or floating rate basis, depending on market conditions and investors preference. The Public issuance are denominated mostly in US Dollar. The Public issuance is aimed to establish IDB’s own benchmark yield curve in the markets across various maturity spectrum with a view to achieve the competitive pricing for its Sukuk, if not better at least to be on par with its peer MDBs, the benefit of which will be passed-on to it member countries in the form of competitive mark-up for projects financing. Besides for fund raising, IDB sukuk is also aimed to promote the development of Islamic finance industry in general and the Sukuk markets in particular by increasing the supply of high quality sukuk which can be actively traded in the secondary markets.
The Private Placement is primarily aimed to meet the specific need of certain type of investors in terms of maturity, profit rate and currency structures. The Sukuk issued through private placement enjoy the same features as the Public issuance in terms of rating and listing depending on the specific preference of the investors.
In addition to the USD MTN program, IDB also established a local currency MYR 1.0 billion MTN program in Malaysia for the purpose of financing projects in local currency. Thus far, 3 tranches of MYR sukuk have been issued amounting to MYR700 million. The 10-year MTN program was established in August 2008 and will expire on August 2018. The program is registered with the Securities Commission of Malaysia and the sukuk is listed and tradable on Bursa Malaysia under the Issuer/SPV name of Tadamun Services Berhad.
Besides being rated “AAA” by the three international rating agencies, other achievements and endorsements which essentially manifestation of transparency and credit quality of IDB sukuk are as follows:-
IDB is committed to diversify its investor base across the globe to ensure sustainability of its external resource mobilization program especially during the adverse financial condition as well as to promote the Islamic finance industry at the international level. In this regards, having established secondary trading yield curve across various maturity profiles would amongst others help both investors and issuers in the price discovery process. At this juncture, IDB sukuk has up to 5-year secondary trading yield curve which is beneficial for the new investors especially as a guide in their investment decision. Moving forward, IDB will strive to further expand its yield curve beyond the 5 year maturity horizon.
Back to TopSukuk Structure
The current IDB Sukuk MTN program is based on Wakalah structure
whereby on each sukuk issuance date, the IDB as the seller of the
financial and/or investment assets will sell those assets to the SPV,
being the Issuer and Agent for the Sukuk holders. The sale proceeds
shall be used by the IDB to fund its business operation. The asset sold
to the SPV would become the underlying sukuk asset, to be jointly owned
by the sukuk holders. The IDB will be appointed as Wakel to manage and
administer the sukuk assets as per the agreed terms and condition. The
sukuk asset minimum tangibility ratio shall at all-time be observed to
adhere to the secondary market tradability condition for sukuk trading
at the market prices as approved by the Shari’a rules.
On each periodic distribution date; quarterly, semi-annually or annually, the Wakel will collect and distribute income generated from the sukuk asset for distribution to the sukuk investors. Any excess of income shall be retained by the Wakel as an incentive bonus.
On maturity date, IDB being the Obligor under this transaction with AAA credit rating, shall buy back the sukuk certificate/assets from the SPV and cancel the sukuk certificate. The SPV shall then distribute the cash proceeds the the sukuk holders.
Besides the above structure, to further diversify its investment product offering, IDB is continuously exploring other sukuk structure that fits its funding need and suits investors demand and will be offered to the market when it deem fit.
The current IDB sukuk structure is further elaborated in the following diagram:-
Back to TopInvesting in IDB Sukuk
Since completion of its first issuance of Sukuk in 2003, IDB has
become a beacon for investors and issuers who are interested in
unlocking the potential of the Islamic finance market. IDB’s
relationships with a broad range of partner institutions, development
agencies and investors give it a comprehensive view of conditions
around the globe, which the Bank uses for the benefit of its member
IDB’s capital base is built on several pillars. It receives exceptionally strong support from its member countries. This provides the Bank with a high level of liquidity and flexibility, allowing it to adapt easily to changing market conditions. IDB is rated AAA by the three major rating agencies (Standard & Poor’s, Moody’s and Fitch), and has been designated as a Zero Risk Weighted Multilateral Development Bank (MDB) by the Basel Committee on Banking Supervision and the Commission of the European Communities. Besides IDB’s strength of its capital base, low leverage and other factors make it a suitable financial institution to partner with.
As a pioneer in Sukuk, IDB serves as an important reference point for other institutions. IDB issued its first Sukuk of US$ 400 million in 2003 which was followed by an issuance of US$ 500 million in 2005 and MYR 400 million in 2008. Since 2009, IDB has been very active in the Sukuk markets issuing Sukuk in almost every year to achieve its objectives. Besides mobilizing resources form the markets through Sukuk issuances, IDB also carries out other forms of fundraising with short- and medium-term durations by way of Reverse Murabaha and Wakala placement.
IDB mobilizes external resources from the global capital markets
based on its annual resource mobilization plan approved by its Board of
Executives Directors at the beginning of the year. The plan takes into
account the need to fulfil the funding need of its operation and
maintaining sufficient liquidity buffer that will enable the Bank to
continue its operations under normal market condition for the next 18
months and further strengthen to withstand the stress test for at least
the next 12 months, in case its access to the markets is somewhat
restricted and/or denied, due to internal or external factors beyond
its control. The net cash requirements for each year is predominantly
composed of net operational disbursements requirements, administrative
expenses, repayments of maturing liabilities and the need to maintain
the minimum prudential liquidity level.
For about 30 years of its operation, the IDB’s financing operations were funded primarily from its shareholders’ equity. However, with the increase in demand for resources to finance developmental projects from member countries, IDB resorted to resources from the market by issuing Sukuk to complement its shareholders' equity. Apart from complementing its internal resources, Sukuk issuance is also aimed at promoting the development of Sukuk industry in the global capital market. The annual resource mobilization plan is developed within the existing liquidity policy of the Bank to ensure that besides meeting the liquidity requirement in a timely manner, it is executed in a way to achieve the most attractive cost of fund from the markets which would eventually be passed on to the member countries.
The IDB sukuk issuance exercise is monitored and guided by its multi currencies MTN Program which is periodically updated and upsized in tandem with the prevailing funding need.
In 1435H , IDB mobilized a total of about US$ 4.4 billion equivalent to meet its funding requirement for that year. The details are as follows :
|1435 / 2014||TYPE OF ISSUANCE||SUKUK SERIES||TENOR (Years)||ISSUE DATE||MATURITY DATE||OFFERING SIZE|
|Public||Series 16||5||Mar-14||Mar-19||USD 1,500,000,000|
|Private Placement||Series 17||3||Apr-14||Apr-17||USD 100,000,000|
|Private Placement||Series 18||5||Jul-14||Jul-19||USD 1,000,000,000|
|Public||Series 19||5||Sep-14||Sep-17||USD 1,500,000,000|
|Private Placement||Series 20||3||Oct-14||Oct-17||EUR 300,000,000|
|TYPE OF ISSUANCE||SUKUK SERIES(Final Terms)||TENOR (Years)||ISSUE DATE||MATURITY DATE||OFFERING SIZE|
|1426/ 2005||Public||Series 1*||5||Jun-05||Jun-10||USD 500,000,000|
|1429 /2008||Public||MYR Series 1*||5||Aug-08||Aug-13||MYR 300,000,000|
|1430 / 2009||Private Placement||MYR Series 2*||5||Mar-09||Mar-14||MYR 100,000,000|
|Private Placement||Series 2*||3||Sep-09||Sep-12||SGD 200,000,000|
|Public||Series 3*||5||Sep-09||Sep-14||USD 850,000,000|
|1431/ 2010||Private Placement||Series 4||10||Sep-10||Sep-20||SAR 937,500,000|
|Series 5||10||Sep-10||Sep-20||SAR 937,500,000|
|Public||Series 6 (Final Terms 6)||5||Oct-10||Oct-15||USD 500,000,000|
|1432 / 2011||Private Placement||Series 7||5||Feb-11||Feb-16||GBP 60,000,000|
|Public||Series 8 (Final Terms 8)||5||May-11||May-16||USD 750,000,000|
|1433 /2012||Private Placement||Series 9||5||Jan-12||Jan-17||GBP 100,000,000|
|Public||Series 10 (Final Terms 10)||5||Jun-12||Jun-17||USD 800,000,000|
|Private Placement||Series 11||3||Aug-12||Aug-15||GBP 100,000,000|
|Series 12**||3||Oct-12||Oct-15||USD 300,000,000|
|Series 13||5||Oct-12||Oct-17||USD 500,000,000|
|1434 / 2013||Private Placement||Series 14**||5||Mar-13||Mar-18||USD 700,000,000|
|Public||Series 15 (Final Terms 15)||5||Jun-13||Jun-18||USD 1,000,000,000|
|Public||MYR Series 3||5||Jul-13||Jul-18||MYR 300,000,000|
|1435 / 2014||Public||Series 16 (Final Terms 16)||5||Mar-14||Mar-19||USD 1,500,000,000|
|Private Placement||Series 17||3||Apr-14||Apr-17||USD 100,000,000|
|Private Placement||Series 18||5||Jul-14||Jul-19||USD 1,000,000,000|
|Public||Series 19 (Final Terms 19)||5||Sep-14||Sep-19||USD 1,500,000,000|
|Private Placement||Series 20||4||Oct-14||Oct-18||EUR 300,000,000|
Note : * Matured ** Redeemed
Back to TopFunding Strategy
IDB’s funding strategy seeks to diversify across markets, products and maturities to ensure availability of sufficient funds at the most competitive cost at all times to meet operational and developmental funding needs of it member countries while being responsive to investor demand. The strategy also seek to ensure sufficient liquidity buffer to withstand market volatility under the stress test scenario.
One of the governing policies for IDB resource mobilization plan is
its liquidity policy which is continuously reviewed and updated to
ensure adoption of the best practice and governance. Having resort to
more external resources would essentially means ensuring availability
of better liquidity management to ensure sustainability, efficiency and
cost effective resource mobilization exercise and timely payments of
those financial obligation under normal and stress financial climate.
The current liquidity policy essentially covers three different
portfolios serving different purposes.
First, the Stable Portfolio (SP), behave like a reserve buffer, is a forward looking and predominantly equity funded pocket covering almost half of up to next three years net cash requirement. Until the portfolio is fully equity funded, if not done so, it will be temporarily covered by the medium term external resources which will be replaced with future incoming equity. The fund would remain untouchable and intact within the set ceiling and would only be deployed in case of financial distress. In case the IDB is denied access to the market due to whatever reasons, it is envisaged that, the portfolio should be able to fulfill all of IDB’s obligation for up to 18 months under normal business environment or up to 12 months under distress financial climate. The fund will be invested in long dated, high quality investment grade assets as articulated in Liquidity Risk Management guidelines.
Second, the Core Operational Portfolio (COP), is essentially the main operational disbursement portfolio for the current year net cash requirement. Even though this could also be equity funded, it would be mainly financed by the external resources and in fact IDB’s yearly resource mobilization plan would be based on this portfolio requirement. While waiting for the actual disbursement to take place, the fund will be invested in liquid securities; mainly money market/murabaha placement of less than 12 months or any other liquid securities.
The third one is the Technical Operational Portfolio (TOP), which is meant for the daily disbursement needs for up to 1 - 2 months disbursement requirement. The portfolio consist mainly the cash balance or very short term money market/murabaha placement.
Even though the overall liquidity requirement would be set and pre-determined at the beginning of the year based on the overall funding needs of the bank, the overall portfolio position would still be closely monitored and reviewed to ensure immediate portfolio position re-alignment in case there is significant upward or downward movement along the period under review.
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Last Updated : Jan 2015, Capital Markets Division