The Central Bank of Jordan has issued its debut sukuk this week, launching a 5 year JOD75mn (US$105.9mn) Islamic bond, with proceeds being used to assist the state owned utility firm, the National Electric Power Company, finance its expenditure programme.
The sukuk issuance follows the development of a framework that allows for Sharia compliant transactions.
“The Central Bank has not been able to tap the Sharia compliant markets in the past because since 2012, when the first laws were drafted, we have been developing the market,” said Mohammad Alhazaimeh, Senior Economist at the Central Bank of Jordan.
The sukuk pays a profit rate of 3.5% according to the Central Bank; sukuk was chosen because of its Sharia compliant fundamentals.
“There were no other factors, such as pricing, that influenced the Central Bank’s decision to tap the sukuk markets. It tapped these markets solely because they were Sharia compliant,” Alhazaimeh stated.
By joining the Sharia compliant markets, the Central Bank can diversify its sources of funding. As well as enabling it to access the wider sukuk markets across the Middle East, it can tap into domestic Islamic liquidity.
Jordan currently has four Islamic banks, three local ones and a foreign entity, with a combined liquidity of around JOD1bn.
Jordan’s Islamic market is relatively young, and much smaller than Sharia compliant markets in other Middle Eastern countries. The Central Bank’s sukuk is likely to be followed by others across the country.
“The Central Bank’s issuance will lead to many other Jordanian entities looking to access Sharia compliant forms of funding,” Alhazaimeh said.
The sukuk was structured in a murabaha format, which Alhazaimeh noted was chosen because it best suited the type of deal, although the Central Bank is planning a new Islamic debt issuance in the near future which will likely use a ijara structure.
Demand for the sukuk was high and saw an oversubscription rate of 2.7X, or JOD205mn.