The Malaysian International Islamic Financial Centre (MIFC) June newsletter had an interesting article about the latest Islamic Development Bank sukuk, which had a 5-year tenor and a 1.357% yield. The sukuk was issued for $800 million, with $900 million in orders. Particularly interesting was the breakdown of buyers: 55% central banks and regulatory authorities, 35% banks, 6% pension funds and insurance/takaful companies and 4% fund managers.
The breakdown of buyers with most of the issue subscribed by central banks and banks--making up 90% of the total subscriptions--should be seen as supportive for future sukuk issuance by the International Islamic Liquidity Management Corporation (IILM), which is now expected to issue its first $1 billion in sukuk later this year (a target which has been pushed back several times as the IILM waits for a credit rating).
The same investors who bought the IDB sukuk (central banks and Islamic banks) are likely to be the same ones who will buy IILM sukuk. The IDB sukuk, based on its high credit rating, is likely to be a commonly used sukuk in Islamic repo, which is becoming more standardized around a collateralized murabaha structure.
That they are demanding such a low yield on IDB sukuk suggests significant demand for highly-rated sukuk (the 1.357% yield compares to the 0.50% yield on similar maturity German Bunds and 0.67% yield on US Treasuries). The low yield is partly due to the preferred creditor status it has with preferred creditor status (financing projects in OIC member countries), as well as its ability to call additional capital from non-borrowing member countries ). Now the next step, presumably, for the IILM to begin issuing sukuk is getting a rating.