SINGAPORE, Oct 18: The Islamic Development Bank (IDB) is seeking to issue another US dollar-denominated Islamic bond, likely in the first quarter of 2005, according to the Saudi Arabia-based bank's Treasurer Mohammad Tariq.

The bond would be the bank's second international issue after it sold a $400 million five-year sukuk, or trust certificate, in July 2003. However, the IDB hopes to tap the offshore market more often to fund a planned expansion in its project and trade finance programmes, Tariq told Dow Jones Newswires in a recent interview.

"We want the IDB name to be known in the market place as a regular issuer," Tariq said, adding that the bank is also considering a medium-term note programme to allow it to tap the market frequently and opportunistically, in smaller size where necessary and in response to demand from investors.

The 30-year-old supranational provides financing for projects and trade in IDB member countries and Muslim communities to foster economic development and social progress.

The bank, which counts Malaysia, Pakistan, and Indonesia among its 55 members, conducts its business according to Islamic, or Sharia, law. Islamic bonds, by contrast, have regular payments based on profit sharing or a cashflow such as rents.

Mr Tariq said the bank, aiming to increase its project finance and trade programmes at a compounded growth rate of some 10-15 per cent per annum, could see its funding requirement over the next five years amount to $5 billion to $6 billion. A five-year strategic plan to assess priority areas and provide a clearer picture of future fund requirements will soon be finalized, he said.

He said IDB officials were now working to finalize the bond plan, which would then be submitted to the directors.

The size is yet to be determined and will depend, among other things, on IDB's requirements. However, it is unlikely to exceed $500 million. The bond will likely be sold at a floating rate of interest, not fixed as with the 2003 issue.

The AAA-rated bank sold its last Islamic bond - increased to $400 million from the original $300 million - at a coupon of 3.625 per cent, or 60.8 basis points over US Treasury's. Citibank was the arranger of the deal.

Funding rates could fall though. "Next time, maybe the rate will be lower," Tariq said, suggesting it could be five or 10 basis points cheaper depending on market conditions.

"Our objective is not just the money, it's to get good distribution," he said.

The 2003 Regulation S deal - which prohibits primary sales into the US - saw about 70 per cent of its deal sold to the Gulf region, 17 per cent to Asia and 13 per cent to Europe. Only around a third of the deal sold to Islamic accounts.

"This time around we will still use the Regulation S basis for our offering because it takes much longer to take it (the road-show) around the US," he said, adding that in future, issuance allowing sales into the US is a distinct possibility.

"The IDB Sharia board has already given IDB clearance for the upcoming bond and endorsed it in a slightly simplified structure," Tariq said.- Dow Jones Newswires