Central Bank of Bahrain's Sukuk Al-Ijara bonds exceed subscription capacity

The Central Bank of Bahrain (CBB) has announced that its monthly issue of the short-term Islamic bonds -- Sukuk Al-Ijara -- has been oversubscribed by five percent.

That will leave some potential investors to wait for the next issue of Sukuk Al-Ijara instruments as CBB sorts out the allotment for this oversubscribed round.

CBB’s monthly bond offering carries a maturity of 182 days and is worth BHD 26 million -- nearly $69 million (USD). Subscriptions for the latest Sukuk offering came in at BHD 27 million, around $71.5 million.

The increased demand for the Sukuk bonds could be attributed to a higher expected return on the issue. The security, which matures on Feb. 11, is expected to get a return of 1.31 percent, an increase over the 1.28 percent forecast for the previous issue, which began on July 16.

The Sukuk Al-Ijara bonds are issued by the Central Bank of Bahrain on behalf of the kingdom’s government.

Since collecting interest is prohibited by Islamic law, Sukuk bonds are structured to comply with religious banking laws by issuing securities that do not pay out interest. That’s done by by involving a tangible asset in the investment, such as partial ownership of a property, with profit coming in the form of rent instead of interest.

This is issue No. 120 of the short-term Sukuk Al-Ijara series put on the market by CBB.