Launch Partners

Tuesday, June 18, 2024

Launch Partners

Deshbandhu Group to issue US$250 million high-yield Sukuk

Bangladesh-based Deshbandhu Group is set to issue a US$250 million Sukuk on the 7th July 2022 through the Al Waseelah Sukuk issuance platform. The high-yield Sukuk will feature a 9% semi-annual profit rate with a tenor of 6 years.  To be issued in both US Dollar and Malaysian Ringgit, it will offer a unique investment opportunity across a wide range of institutional investors.

The conglomerate has interests in 16 companies including food, beverages, fibers, textiles, trading, power and properties. The issuance aims to increase foreign exports, increase internal market share and invest in new technologies and people.

While the issuance will not feature sustainability or ESG key performance indicators (KPIs), Sukuk proceeds will be used to set up new factories and add capacity to existing operations hopes to employ 5000+ more local employees, focusing on UN SDG targets of no poverty (SDG 1), gender equality (SDG 5) and decent work and economic growth (SDG 8).

It has not been smooth sailing for the upcoming issuance. One of the main challenges the Sukuk faced was its Islamic structure. The Sukuk utilizes a hybrid Wakalah and Mudarabah structure, appealing to a wider range of investors both Islamic and conventional. However, it was initially intended to be based on a Murabahah model.

Highlighting the challenge of a lack of literacy on Islamic financial instruments and contracts in the conventional regulatory space, Scott Levy, the CEO of Bedford Row Capital, one of the lead managers of the issuance, shared with Islamic Sustainable Finance and Investment (ISFI),

“The central bank did not accept a Murabahah structure because they thought it was a loan. The transaction then had to be structured using an alternative and more complicated flow of funds to mee the central bank’s incorrect and incongruous rules. Subsequent changes will need to be made to central bank rules to ensure more standard structures can be used to finance Bangladeshi companies,”

Scott shared further that while the Islamic finance industry is verbally pushing the ESG initiative, there has not been enough corresponding action.

“It is interesting that as the market talks generally about the important of these for Islamic Finance, when presented with a deal with outstanding characteristics, it is almost ignored in the assessment by too many. Lip service to impact investing is not going to move the needle or make the impact that the industry wants,”

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