One WASH Fund to issue impact Sukuk in 2020 as new cholera outbreaks emerge

The One WASH Fund recently set up by the International Federation of Red Cross and Red Crescent Societies (IFRC) and the IDB to combat cholera and other diarrheal diseases in OIC member countries is on track with an impact Sukuk facility planned for 2020. MARC ROUSSOT has the story.

Standing at the back of a truck, a man is waiting in the middle of the night for more cartons full of oral cholera vaccines to be loaded. The boxes containing 1.6 million doses were chartered by plane to Khartoum by the UNICEF last week. Their final destination is Sudan’s Blue Nile and Sennar states where a new cholera outbreak emerged in September and has already killed eight people.

To combat this disease, which is considered endemic in 40 states of which 29 are OIC member countries, the IFRC and the IDB are targeting to mobilize US$180 million for their One WASH Fund over the next five months.

Structured as a stand-alone entity, the One WASH Fund, established and presented on the sidelines of the 74th session of the UN General Assembly in September, will manage the pool of money raised, which will be used as the underlying asset for an impact Sukuk issuance.

The proceeds from the deal will be used to further grow the size of the fund that will finance a water, sanitation and hygiene (WASH) program aiming to impact the lives of five million people.

Impact Sukuk
The seven-year Sukuk Mudarabah facility worth at least US$80 million will be privately placed at the end of the first quarter or the beginning of the second quarter of 2020 with the help of HSBC and First Abu Dhabi Bank. Both banks have been appointed to market the paper while White & Case is providing legal support.

The IFRC was initially planning to issue its Islamic paper in November 2019 and a December 2018 report by the IFRC indicated a target amount of US$150 million.

“We needed to create a lot of awareness about how innovation can be brought to the impact bond world and this took us time. We also wanted to be sure that all different aspects had been tackled,” explains Amin Hillal, the person in charge of alternative development finance at the IDB, who adds that: “What is important is to have hard commitments from grant contributors to have a precise idea of the size of the underlying asset. Then only will we be able to think about the size of the Sukuk that can be issued. If we have enough grant contributions, or even more than what we are targeting, we can go for a larger Sukuk.”

Amin is confident of the success of the Sukuk auction because the structure carries limited risk for investors. This is also likely going to result in a low yield for the originator.

“Because outcome founders are likely to be in majority government agencies from northern highly rated countries, we believe that the risk investors are taking is limited so it would make sense that the yield is low. In addition, generally speaking, we are in a market where yields on debt are extremely low,” details Amin.

Beating the war drums
In their battle against cholera and other diarrheal diseases causing up to 143,000 deaths every year, according to the World Health Organization, the IFRC and the IDB have been trying to attract donors and investors through roadshows in the UK, Malaysia, Kuwait, Qatar, Saudi Arabia and the UAE over the past few months.

“The purpose of the roadshows was twofold: test the appetite for this kind of financing model and mobilize philanthropic capital from both traditional and non-traditional donors. In the end, we realized that there is a huge appetite and we are now focusing on mobilizing hard commitments from grant contributors such as bilateral agencies, governments, foundations, high-net-worth individuals and corporations,” says Ramya Gopalan, the global innovation coordinator at the IFRC.

Unlike investors who will buy the Sukuk facility, grant contributors are those who contribute to the fund. They are divided into two categories: outcome funders who are committing to funnel a certain amount and will pay at the end of the project once completed, and donors who will financially participate on the first day. Overall, US$120 million is expected to be raised in outcome funding and US$60 million in donations.

This article first appeared in IFN Volume 16 Issue 41 on the 15th of October 2019

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