The IDB team led by Abdul Aziz Al-Hinai, vice president of finance, and including Hasan Demirhan, acting director of the treasury department, Hatem Ghouma, financial analyst, Zainol Mohamud, manager of the Capital Markets Division, and Zakky Bantam, financial analyst at Capital Markets Division, was in London to discuss the Multilateral Development Bank’s (MDB) latest planned sukuk offering under its Medium Term Note (MTN) or Trust Certificate Issuance Program, which was officially increased this month from $1.5 billion to $3.5 billion.

The road show kicked off in Riyadh on Oct. 12, followed by showcases in Kuala Lumpur, Singapore, Abu Dhabi, Dubai, Zurich, Geneva and culminating in London on Tuesday.

This latest offering is expected to raise $1 billion through a sukuk issuance of 5, 7 and 10-year tenors and which would be listed on the London Stock Exchange and the Bursa Malaysia.

The international market of course is familiar with IDB risk and the institution. As an MDB, the IDB compares very well with its peers. The IDB, for instance, has the highest capital adequacy ratio of all the MDBs including the World Bank; it also has the highest paid-up capital of all the MDBs; and the third highest income of the MDBs. Its financial ratios including return on average assets and equity are also the highest of the top MDBs.

It is also familiar with the sukuk structure, which will be the same as in the previous IDB international offerings — the $400 million debut sukuk; followed by a $500 million sukuk and the $850 million sukuk in 2009. With this proposed one the number of IDB offerings will be four totaling $2,750 million — the largest volume of sukuk issuances by any supranational.

With sukuk as a preferred instrument to raise funds from the market, the IDB’s current ceiling of $3.5 billion Trust Certificate Issuance Program is in danger of being exhausted. IDB Vice President for Finance Abdul Aziz Al-Hinai confirmed that the MDB plans to issue a sukuk under the program fairly regularly, and as such may have to increase the ceiling further.

However, with all these issuances, the IDB is building up a sound asset pool base. Some of the proceeds of the new offerings will also be used to redeem earlier issuances. So it is a virtuous circle of financing, according to one Islamic banker. Indeed, according to the IDB, it will soon pay off one of the sukuk to the tune of $300 million.

The IDB is also keen to move away from relying on equity as a source of finance and it is very cautious about leveraging. As such the trust certificates seem to be an ideal vehicle for issuing Shariah-compliant commercial paper. This offering like the previous ones will also be issued through the Jersey-registered IDB Trust Services Limited.

International ratings agency, Fitch Ratings, has also re-affirmed its AAA the rating of the IDB Trust Service Limited’s $3.5 billion MTN Program which benefits from a liquidity facility provided by the IDB. The Program’s rating is supported by the IDB’s Long-term Issuer Default Rating (IDR) of AAA with a stable outlook.

Another international rating agency, Moody’s Investors Service, last month had already reaffirmed for a fifth consecutive year the Islamic Development Bank’s Aaa long-term and P-1 short term foreign currency issuer rating with a stable outlook.

Moody’s stated that the IDB's rating is strongly supported by the commitment of its member countries, and highlighted that the capital base of the bank is strong, its operational assets continue to perform well, it has a high level of liquidity and very low level of debt. Moody’s concluded that the bank’s risk profile is likely to remain healthy over the medium term.

The global lead managers for the issuance are CIMB of Malaysia, Citigroup, HSBC and Standard Chartered Bank. The issuance is expected to be well over-subscribed and already the indications are of strong institutional and supranational demand. Final demand will depend on price guidance for the issuance, which will go some way to build a benchmark yield curve for IDB issuances.