The IDB’s Sovereign Sukuk Insurance Policy to enable junk-rated member countries to issue Sukuk (By IFN)

The IDB’s Sovereign Sukuk Insurance Policy to enable junk-rated member countries to issue Sukuk

Daily Cover

GLOBAL: The IDB, via its insurance arm, the Islamic Corporation for Insurance of Investment and Export Credit (ICIEC), will be providing a new insurance product, dubbed the Sovereign Sukuk Insurance Policy, to insure Sukuk investors against default on Sukuk issued by sovereign members of the IDB and ICIEC. The product, which was endorsed and agreed upon by the ICIEC’s board of directors yesterday, is expected to allow the ICIEC’s member countries; particularly those whose ratings are not so favorable, to tap the international capital markets and boost investor confidence in the issued papers. Dr Abdel Rahman Al Tayeb Taha, the CEO of the ICIEC explained: “In line with its mandate to facilitate the flow of investments and project finance to its member countries, ICIEC has taken the initiative to launch this innovative insurance product which is the first of its kind in the market. We are targeting sovereign Ijarah Sukuk at the outset, and will roll this product out to other forms of Sukuk in due course. This is in line with the strategy of the IDB Group to promote infrastructure development and the expansion of Islamic finance across its member countries.” He added that the product will enable member countries which are rated below investment grade, or unrated, to gain access to the international capital markets, while the ICIEC’s ‘Aa3’ rating by Moody’s will serve as “a strong credit enhancement mechanism, and encourage international banks and investors to participate in such Sukuk offerings”. The IDB’s member countries such as Egypt and Tunisia are currently rated as junk by rating agency S&P and it is expected that such a policy will aid in catalyzing these countries’ goals to issue Sukuk this year. A UK-based credit analyst said: “The IDB’s plan is a positive development for the Sukuk market and demonstrates that Shariah compliant capital market instruments are maturing. A direct guarantee is probably a stronger form of protection than credit default swaps.” The product is expected to be made available before the end of this year.