State Bank invests $25 million in Islamic bond

KARACHI (August 12 2003) : State Bank of Pakistan (SBP) has invested its swelling foreign exchange reserves in the commercial market for the first time, choosing an Islamic Development Bank five-year bond for its debut, bank officials said on Monday.

“The State Bank has invested $25 million in the Islamic Development Bank (IDB) bond,” Zafar M. Shaikh, head of treasury at the central bank, told Reuters.

“The settlement day for the $400 million bond is August 12.”

It is the first time that the central bank is investing a portion of the country's foreign exchange reserves in the commercial market, reflecting growing confidence in the size of the reserves and the stability of the economy.

Country's foreign exchange reserves stand at $11.06 billion.

“The investment reflects the comfortable position of the foreign exchange reserves and the strength of our economy,” Shaikh said.

Citigroup acted as lead adviser, sole book runner and lead manager for the transaction, while a subsidiary, Citi Islamic Investment Bank, structured the bond.

Abu Dhabi Islamic Bank and Kuwait Finance House have acted as the co-lead managers.

The bond has been approved by the Shariat Board of the Islamic Development Bank, Shaikh said.

The yield on the bond is expected to be around 16 basic points above five-year swaps, a senior official at the Citi Islamic Investment Bank said by telephone from Dubai.

“Originally, it was a $300 million bond, but its amount was increased because it has been oversubscribed,” he said.

The bond, which was launched on July 29, will mature on August 12, 2008, he added.

“Besides central bank of Pakistan, the central banks of Saudi Arabia, United Arab Emirates, Malaysia, Bahrain and Bangladesh have also invested in the bond,” the official in Dubai said.

Shaikh said that the central banks of Islamic countries had invested in the bond in an attempt to promote Islamic financial instruments.

“The success of the bond will also motivate the local banks to come up with Islamic instruments.”

The Citi Islamic Investment Bank official said that the Islamic Development Bank's bond had been assigned AAA rating by Standard & Poor's and AA by Fitch Ratings.

“The structure of the bond complies with Islamic laws”.

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