ADB eyes issuance of Islamic bond next year

The Manila-based development lender is building strong links with Islamic finance, holding its first conference on the subject last month as part of efforts to boost financial inclusion and promote financial stability in member countries.

A proposal will be presented to ADB management in the first quarter of next year, defining whether the AAA-rated lender aims for a single issuance or a recurring sukuk programme, Ashraf Mohammed, assistant general counsel at the ADB, said. “It’s early days but one would hope it’s more than just a one-off. I am hopeful we can make headway in 2014.”

ADB is dedicated to reducing poverty in Asia and the Pacific through inclusive and environmentally sustainable economic growth and regional integration. In 2012, ADB assistance totalled $21.6 billion, including co-financing of $8.3 billion.

The proposal would look at whether the sukuk is set up on a standalone basis or as part of one of its existing bond programmes, said Mohammed. “It really depends on how we structure it. We may have to do a separate sukuk programme — separate from existing bond programmes.”

Identifying financing projects in member countries, either from the government or private sectors, would then determine the size and tenor of a potential sukuk, he said. Some of the countries the ADB would work with in this area include Pakistan, Bangladesh, Indonesia, the Philippines, the Maldives and several central Asian countries, he added.

The ADB would then consider an insurance policy designed to boost the credit rating of sukuk from sovereign issuers, mirroring a product developed by a unit of the Islamic Development Bank (IDB).

“This is something the ADB is also considering,” said Mohammed, adding the ADB had already worked on a partial credit guarantee with the IDB for a project in Pakistan in 2012, which could serve as a basis for the product.

Sukuk have grown in prominence as a funding tool beyond the industry’s core markets of the Middle East and Southeast Asia. —