Downsizing of Sukuk

The Islamic Corporation for the Development of the Private Sector (ICD) has taken the usual step to downsize a planned Sukuk from $500m to $300m. The AA/(p)Aa3 (Fitch/Moody’s) rated Jeddah based supranational is a unit of Islamic Development Bank (IDB), said it had “retained a portion of the transaction” according to a quote published by Reuters attributed to the lead manager.

ICD’s ratings are driven by support from key shareholders, IDB (AAA/Stable) and Saudi Arabia (AA/Negative), which owns 45.6% and 18.2% of capital. ICD is issuing the sukuk through a special purpose vehicle (SPV) Hilal Services Ltd established in the Cayman Islands. The issuance will be listed on the London Stock Exchange.

The planned five year debut issuance was launched last week and downsized after being incorrectly priced compared to more liquid credits in the market according to bankers familiar with the deal. “If we had added a few basis points, we would have had a larger size,” the same source added.

Banks Added as Arrangers Mid-Deal

The sukuk was being arranged by eight banks but another two (Noor Bank and Warba Bank) had been added to the list in order to tap a larger investor base, indicating it was a struggle for ICD to even reach $300 million.

A Gulf based banker from one the arrangers said the lack of buyers of the paper reflected the challenging times Gulf based banks are facing. He stated colleagues were surprised at the pricing of the deal and that as a development unit which exists to assist the private sector to issue Sharia’h compliant deals, the ICD embarrassed itself in this transaction as it is unheard of for an AA rated issuer to downgrade the size of a sukuk, particularly a supranational which helps and advises others on the process of issuing sukuk.

ICD has previously successfully arranged debut sukuk for Senegal and Ivory Coast.