The Bahrain Monetary Agency (BMA) has successfully launched the debut issue of a short term, tradable Ijara sukuk (Islamic leasing bonds), in yet another pioneering move by the BMA to develop Islamic banking and enhance investment opportunities for commercial banks and pension funds.
The issue, which begins on 25th August 2005 and matures on 23rd February 2006, has been oversubscribed by 222%.
The BD-denominated Sukuk Al-Ijara of six-months (182 days) maturity, is the first of its kind in the world.
The short term Ijara sukuk, which is asset backed, will be issued on a monthly basis by the BMA on the last Thursday of each month. Each issue will be worth BD10 million (US$27 million). At close of subscriptions on 23rd August 2005 for the debut issue, tenders worth BD22.2 million (US$59 million) had been received by the BMA.
Each issue will carry a fixed rental return, which will be based on the prevailing six-month LIBOR rate, with the return to be paid on maturity. The return on the debut issue is 4.06%.
Each sukuk issue is available to all Islamic and conventional full commercial banks (FCBs), licensed by the BMA, as well as pension funds in Bahrain. Other interested investors, who are allowed to subscribe through the eligible FCBs, include locally-incorporated insurance firms, Islamic investment banks and individual investors from in and outside Bahrain.
“The sukuk is the first short term, tradable Ijara sukuk for the global Islamic banking industry and we are delighted by the success of the first issue,” said Shaikh Salman bin Ahmed Al Khalifa, Director, Banking Services, at the BMA.
The sukuk can be traded to facilitate short term BD liquidity management by Islamic financial institutions.
In the future, the BMA intends to allow the subscribing institutions to use the short term Ijara sukuk as collateral against short term credit facilities from the BMA. “This will add further depth to the primary Islamic debt market in Bahrain,” said Shaikh Salman.
He reiterated BMA’s commitment to supporting the Islamic financial industry. “In developing this instrument, BMA’s intention was to make available to Islamic financial institutions a greater diversity of investment choices, as enjoyed by their conventional counterparts,” said Shaikh Salman.
The BMA is a well recognized pioneer in Islamic banking and finance, he pointed out.
In the area of Islamic debt market instruments, the BMA has been at the forefront of developing and issuing sukuk. A rolling programme of monthly issuance of short term commodity-backed securities, Sukuk Al-Salam, has been in place since June 2001.
It complements a programme of regular issuance of asset-backed Ijara Sukuk, which the BMA has been issuing since September 2001, of medium and long term tenor. Last year, the BMA issued the Islamic banking industry’s longest tenor sukuk, with a BD40 million (US$106 million) issue of Ijara sukuk carrying with 10-year maturity.
So far, the BMA has offered 11 issues of Ijara sukuk, worth a total of US$1.21 billion, of which US$1.14 billion is currently outstanding.
“The BMA now has a full complement of Ijara Sukuk of short, medium and long tenors,” said Shaikh Salman.
The Ijara sukuk are issued by the BMA on behalf of the Government of Bahrain, which enjoys a local currency rating of A from international rating agencies, Standard & Poor’s (S&P) and Fitch. The sukuk are guaranteed by the Government of Bahrain.
