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Islamic finance moves on with debut Eurobond

Issuer: Islamic Development Bank
Size: $400 million
Bookrunner: Citigroup
July 29 2003

The Islamic Development Bank's five-year fixed-rate $400 million debut Eurobond has taken Islamic finance another step forward. Not only does it further underscore the demand for such bonds among both Islamic and conventional institutions, it is the first time an Islamic bond, which has to be asset backed, has been backed by a pool of assets, paving the way for greater flexibility for shariah-compliant issuers.

Underlying issue Money has no intrinsic value in Islamic finance, so bonds have to represent a real underlying asset. Bahrain's $250 million sukuk (shariah-compliant asset-backed bond) issued in May 2003 is backed by an ijara lease on the country's airport; Malaysia's $600 million global sukuk, launched in June 2002, is similarly backed by an ijara on a single piece of government property.

In contrast, the IDB's debut issue is backed by a pool of ijara leases as well as murabaha and istina contracts spread across 15 countries. The ijara are leases that the bank has financed for development projects in member countries, such as the purchase of railway carriages for the Sudan Railways Corporation. The pool also includes the lease financed by the IDB for an A330-200 for Emirates, the Dubai-based airline [see Opportunity knocks on the Islamic front, this issue].

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