JEDDAH: The Islamic Development Bank is currently in the process of increasing the size of its medium-term note (MTN) program. This will enable it to go for more issuance of sukuk (Islamic bonds) as and when required under its new resource mobilization strategy.
The Jeddah-based triple-A multilateral development bank which finances projects in the Islamic world also intends to raise funds through private placements. It has already raised up to $300 million from institutional investors under this program, said a senior executive of the bank.
According to Mohammed Tariq, adviser to the President of the IDB Group, a sizeable increase in the MTN program, currently at $1.5 billion, is planned. Once the board of directors of the bank approves, the regulator will be approached for approval. The bank has already reached the sealing of the program after raising $1 billion (through sukuk amounting to $850 million and $150 million from an institutional investor in Singapore) in 2009 and $500 million in 2005.
The board’s decision and the UK regulator’s approval are expected in a few weeks. “So you may expect some news about new issuance of sukuk by IDB by February end or March,” Tariq said. But he also added that since IDB’s liquidity is very high, there is no immediate need of raising money from the market.
Commenting on the setback to the Islamic financial market after the debt crisis in Dubai, the IDB official said it certainly affected the investor sentiment. Investors should pay greater attention to investment risks and capacity of issuers to repay in a timely fashion. He, however, stated: “It will not have an impact on IDB’s ability to raise funds. We are in a very sound position as we have AAA ratings from Standard & Poor’s, Moody’s and Fitch rating agencies; our financial resources are large; our balance sheet is strong; we have good liquidity and our leverage is small.”
Besides, Tariq explained that IDB’s cash flow is quite strong as it receives funds from various sources. He referred to the incoming contributions of share capital by member countries as well as periodic return on investments.
Still he did not rule out the new issuance as, according to him, it depends on market conditions and opportunities available at a given time.
Tariq said IDB plans to access the financial market more frequently than in the past. It raised $850 million in September 2009 after a gap of four years. He said under IDB’s new resource mobilization strategy, it will not rely on public offering alone. It will be focusing on private placements which have their own advantages. This process enables IDB to raise smaller amount through bilateral agreement with institutional investors. He mentioned three such deals through which the bank raised $300 million in August and September 2009, roughly the same time when $850 million was raised through international sukuk. While one deal was part of the ongoing program, two others were not.
