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Saudi IDB says rule change may cut debt issuance
LONDON - The Saudi-based Islamic Development Bank (IDB) is considering cutting the amount of cash it must keep on its books in a move which could reduce its need to tap the debt markets for funds, a senior official said.
Mohammad Tariq, advisor to IDB president Ahmed Mohamed Ali, said the IDB currently holds the equivalent of 40 percent of its investment commitments on its books, but will decide within four months whether to change this measure to a system more closely matching short-term inflows and outflows.
“We are reviewing our liquidity policy right now and we may change it; in that case it is most likely that we may lower the bar in line with other multi-laterals and in that case our borrowing needs will come down because we would have spare cash,” Tariq said at the Reuters Islamic Banking and Finance Summit in London on Monday.
The IDB finances projects in Muslim countries and operates in a similar way to the European Investment Bank (EIB).
It already uses a net cash requirement system to monitor cash flow but is now considering making this formal policy.
Earlier this month, Mohamed Ali told Reuters the IDB plans to issue Islamic bonds, or sukuk, to raise up to $5 billion over the next five years.
Tariq said on Monday the bank has calculated gross financing commitments to be $7 billion in the period.
Up to $1 billion could be raised this year via private and public placements and the IDB is also planning to raise $2 billion through an extension to a UK-registered medium-term-note (MTN) programme originally approved to raise $1.5 billion.
Last year the IDB launched a $850 million five-year sukuk as the first tranche of the MTN programme.
The proposed new tranche of the MTN programme could include euro-denominated bonds in response to demand in Northern Africa and sterling bonds to tap potential appetite in the UK, which has five Islamic banks, Tariq said.
The IDB has also decided to step up its programme of investments and will double the pace of growth from a previous target of 15 percent per year, Tariq said.
“Our member countries have been badly impacted by the crisis, hence the board has asked that for the first three years of the next five years financing should be increased by 30 percent per annum,” he said.
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