IFC seeks to cut cost of $100m sukuk

International Finance Corporation (IFC), the private sector arm of World Bank, is planning to lower the cost of its $100 million (Dh367m) sukuk listing in Dubai and Bahrain after discussing it with the bourses, Emirates Business has learned.

"The whole process is more difficult. It's more expensive in structuring and doing it and the pricing tends to be higher than global markets," Nina Shapiro, IFC Vice-President for Finance and Treasurer told this newspaper on the sidelines of a conference yesterday.

"We are explaining our credit and our international standing. We are trying to put it [rates] down."

Her comments came after a recent DIFC's fund review recommends to the centre to reduce its licensing fees and other associated costs.

Nasser Saidi, DIFC chief economist, said the probability of reducing the rates is being considered due to the credit quality of IFC, which is rated AAA by rating agencies. Due to the lack of standardisation in the documentation of sukuk, Saidi said the cost tends to be higher. But as the IFC sukuk sets a benchmark, the costs on sukuk listing may be pushed "much lower" later on.

"We are also working with our regulators in stream lining the approach and accelerate the process to make it easier for sovereigns and corporates," he added.

Jeff Singer, Nasdaq Dubai CEO, declined to comment on whether they will be reducing the cost.

IFC will list its first sukuk worth $100m on Nasdaq Dubai and Bahrain bourses next week or early November. Michael Essex, Director of IFC's Mena operations said the IFC has set a price guidance at 35-45 basis points more than five-year US Treasuries.

The IFC Hilal sukuk is a dollar-denominated non-amortizing issue with a five-year maturity and will be used to finance regional healthcare projects like purchase of medical equipments. The sukuk is rated Aaa by Moody's.

Salah-Eddine Kandri, Principal Investment Officer of IFC, said: "The projects are already in the books of IFC. They are medical equipment. The assets are in the region,"

A separate special purpose vehicle will issue the IFC sukuk and warehouse the underlying assets. The syndicate includes HSBC Amanah, Dubai Islamic Bank, Kuwait Finance House.

This is the first of a number of sukuk issues that the Washington-based firm aims to launch in the GCC over the next few years. Shapiro said IFC plans to issue bigger Islamic bonds every 12-18 months to support a pipeline of Islamic finance projects in health, education and infrastructure sectors.

"In terms of market, $100m is small but that is the least that we could do to at least establish credibility and benchmark," she said.

The sukuk global asset class has a market value of over $200 billion. IFC is the first non-Islamic financial institution to issue a sukuk for term funding in the GCC. This is also the first sukuk to be listed and cleared in the GCC market.

"This will open the doors for other multilateral institutions to issue sukuk in the region and this will serve as a benchmark for sovereign and corporates internationally and locally who wish to issue sukuk," Saidi said.

He said sukuk will be a good source of financing the region's infrastructure, which needs $2 trillion investments over the next 10 years.

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