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UPDATE 1-Islamic Development Bank prices its largest ever sukuk
February 27, 2014 / 1:46 PM / in 4 years

UPDATE 1-Islamic Development Bank prices its largest ever sukuk

DUBAI, Feb 27 (Reuters) - The Jeddah-based Islamic Development Bank priced on Thursday a $1.5 billion, five-year sukuk, the largest ever Islamic bond from the supranational lender.

The transaction, the AAA-rated lender’s first in 2014, came at a spread of 23 basis points over midswaps and a profit rate of 1.8125 percent, a document from lead managers said.

Pricing was inside the guidance given by lead managers on Tuesday, which indicated the deal would price in the mid-to-high 20s over the same benchmark.

It was also inside the spread on IDB’s previous transaction in May 2013, which came at 30 bps over midswaps.

“Every year we manage to accomplish better pricing for our sukuk and as we issue more sukuk, we will end up having better pricing because our sukuk will be more tradable and have more interest from investors,” Abdul Aziz Al Hinai, vice president of IDB, told reporters at an event in Dubai.

While the pricing was lower than previous five-year issues by the bank, it still has to pay more than other AAA-rated multilateral lenders, which Hinai said was mainly due to a lack of familiarity with sukuk among international investors and the fact IDB has only been issuing paper for the past five years.

“In many regions of the world they don’t feel comfortable investing in sukuk so we are trying to educate investors,” Hinai said.

“Most likely the cost of sukuk will be higher because of the awareness issue. It’s not a question of quality but because people don’t know them (sukuk).”

Investors in the Middle East subscribed to 51 percent of the trade, with European and Asian investors making up the remaining 27 and 22 percent respectively, according to a separate document from lead managers.

Of the more than 60 investors which bought into the deal, which was oversubscribed by an undefined amount, 49 percent were banks or asset managers. Central banks and fund managers secured 42 and 9 percent respectively, it added.

The banks arranging the transaction were CIMB, Commerzbank, First Gulf Bank, HSBC, Natixis, National Bank of Abu Dhabi and Standard Chartered.

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