5-year Islamic Bonds Are Offered By The Islamic Development Bank (IsDB)
According to a bank document, the Islamic Development Bank has provided the first price guidance for a projected five-year Islamic bond at a spread of around mid-60 basis points over the 5-year secured overnight financing rate in the United States.
The transaction, which is anticipated to price on Thursday, is being co-managed by BNP Paribas (French international banking group), Credit Agricole (La Banque), Dukhan Bank (Qatar), Goldman Sachs (U.S multinational investment bank and financial services company), The Islamic Corporation for the Development of the Private Sector, JPMorgan, Mizuho (Japan), SNB Capital (Saudi Arabia), and Standard Chartered (multinational), the document reveals.
This comes at a time when new bond issues in the Gulf have fallen precipitously due to erratic markets and rising interest rates this year.
However, on Tuesday, when benchmark rates were slightly lower, there were three hurried issuances: leading Dubai bank Emirates NBD offered $500 million, Saudi Arabia raised $5 billion using Sukuk and bonds, and Abu Dhabi wealth group Mubadala raised $1 billion.
Islamic Development Bank
The Islamic Development Bank, or IsDB, is a multilateral development finance organization with its headquarters in Jeddah, Saudi Arabia, that focuses on Islamic finance for infrastructure development.
It was established in 1973 by the Finance Ministers at the first Organisation of the Islamic Conference with the support of the King of Saudi Arabia. Saudi Arabia is the largest single shareholder of IsDB among the other 57 member countries as they hold about one-quarter of the bank’s paid-up capital. The bank is also an observer at the United Nations General Assembly.
Membership – Countries And Eligibility
The Bank has 57 countries as members as of 2022. If a prospective country is a member of the Organisation of Islamic Cooperation (OIC) headquartered in Jeddah, Saudi Arabia, they are eligible for membership in the bank. Along with that, the member nations should pay their share of the bank’s capital as well as be prepared to abide by any terms and restrictions that may be set by the IsDB Board of Governors.
Other major shareholders of IsDB include Algeria (10.66%), Iran (9.32%), Egypt (9.22%), Turkey (8.41%), United Arab Emirates (7.54%), Kuwait (7.11%), Pakistan (3.31%), Libya (3.31%), and Indonesia (2.93%). [The reports are as per the paid-up capital (August 2015)].
Structure Of Functioning, Activities
The IsDB consists of 5 different but related entities:
- Islamic Development Bank (IsDB)
- International Islamic Trade Finance Corporation (ITFC)
- Islamic Research & Training Institute (IRTI)
- Islamic Corporation for Insurance of Investment and Export Credit (ICIEC)
- Islamic Corporation for Development of the Private Sector (ICD)
IsDB Group as a whole is involved in a wide variety of integrated and specialized activities, including Development assistance to fight poverty, Public and private sector project funding, Trade financing, Economic and trade cooperation among member countries, scholarships, and special aid for Muslim populations in non-member nations as well as member nations, etc.
What Is Sukuk?
A Sukuk is an Islamic financial document that complies with Sharia, or Islamic law, and is comparable to a bond in Western banking. In short, it’s just the ‘Arabic word’ for financial certificates.
The issuer of a Sukuk essentially sells an investor group a certificate and then uses the money to buy an asset in which the investor group has a direct partial ownership interest because the conventional Western interest-paying bond structure is not permitted. Additionally, the issuer must contractually commit to repurchasing the bond at par in the future.
Since the first Sukuk was issued in Malaysia in 2000, as Islamic finance has risen, these instruments have gained enormous popularity. Bahrain did the same in 2001. In the present day, Sukuk is employed by both state-run and Islamic businesses globally, accounting for an expanding portion of the global fixed-income market.
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