Stable outlook for Islamic Development Bank.
Under the proposed sukuk structure, trust certificates ("certificates") will be issued by IDB Trust Services Limited, a Jersey-based finance vehicle.
The net proceeds of the issue of such certificates will be used to purchase a portfolio of sukuk assets which may comprise ijara assets, murabaha contracts, istisna'a contracts and Islamic Development Bank's (IDB or the Bank) investments in equity and sukuk certificates.
The rating of the certificates is in line with the Aaa long-term foreign currency rating of the IDB's Ordinary Capital Resources.
Moody's regards the certificates as senior unsecured obligations, without any preference or priority, among all trust certificates of the same series and with all other present and future trust certificates.
The Bank's Aaa rating was assigned in June 2006.
The IDB is a multilateral development bank (MDB) based in Jeddah. Like other MDBs, it is governed solely by international law and is not subject to any particular sovereign jurisdiction.
Also, like other MDBs, the IDB benefits from preferred creditor status. Virtually all of the IDB's operational assets (equivalent to development loans for other MDBs) benefit from sovereign, government-owned bank or highly rated commercial bank guarantees.
The capital base of the Bank is strong.
The Bank's usable equity (paid-in capital plus total reserves) exceeds its total operational assets and equity investment, and the Bank's risk asset coverage ratios generally compare favorably with other MDBs.
Although the weighted average sovereign credit quality of the IDB's 56 member countries is lower than other Aaa-rated MDBs (the IDB has no Aaarated members), IDB members are strongly committed to the organization.
This was illustrated by a decision in May 2006 to double the Bank's subscribed capital and increase its paid-in capital by around 50% over a five-year period.
More recently, in June 2008, as a consequence to allow one more member country to have a permanent seat in the Board of Executive Directors, the Board of Governors voted to raise the Bank's subscribed capital by a further 7% and paid-up capital by 10% (86% of the increase in paid-up capital is payable over 5 years and the rest during the following 5 years).
Despite a risky operating environment, inherent in its role as a development bank, the IDB's operational assets continue to perform well, with a very low level of impairment.
Moreover, the most risky portion of the Bank's operational assets (those extended to the poorest member countries on a concessional basis) will gradually be transferred to a new poverty reduction fund (the Islamic Solidarity Development Fund or ISDF) that is financially separated from the Bank.
This should raise the Bank's profitability and enhance its risk profile.
The Bank enjoys a high level of liquidity and a very low level of debt, partly because of the Islamic, assetbased nature of its operations that is unique among MDBs.
The IDB periodically issues Sukuk (Islamic bonds) in part to help develop the global Islamic financial market.
The last rating action for the IDB was on June 30, 2006 when the Bank's Aaa rating was first assigned.
The Islamic Development Bank's ratings were assigned by evaluating factors relevant to the specific characteristics of multilateral development banks, reflecting in particular their dual nature as financial institutions and vehicles of international public policy.
MDB rating factors include an assessment of the stand-alone financial strength of the institution (in particular its level of capitalization, liquidity, its risk management framework and the quality of its assets), as well as the multiple forms of support (including in contractual form) provided by the governments that compose its membership.
These attributes were compared against other similar institutions and the IDB's ratings were calibrated against Moody's global scale.
IDB's ratings are believed to be similar to other issuers presenting comparable credit risk.
Saudi Economic Survey. All rights reserved.
Provided by Syndigate.info an Albawaba.com company
|Printer friendly Cite/link Email Feedback|
|Publication:||Saudi Economic Survey|
|Date:||Sep 6, 2009|
|Previous Article:||Al Rabie provides support to Islamic Affairs Ministry.|
|Next Article:||DP World H1 profits down 32% to $188 million.|