Al Rayan Bank UK has priced its £250mn Islamic bond ‘Tolkien Funding Sukuk No 1’ at 80 basis points over three-month Libor (London Inter-bank Offered Rate) as part of efforts to make the debt “attractive” for investments.
The UK lender launched the first-ever £250mn sukuk through residential mortgage backed securities (RMBS, the Islamic Shariah compatible alternative), thus becoming the first bank to issue sukuk outside an Islamic country.
“The demand from investors has been significant, with European RMBS investors and conventional and Islamic banks and pension funds all represented in the final allocation,” said the UK lender, which is 68.84% owned by Masraf Al Rayan.
The transaction is secured by a portfolio of prime UK, first-charge, owner-occupied, home purchase plans, originated by Al Rayan Bank. The sterling-denominated sukuk has an expected called weighted average life of three years.
Proceeds raised from the sukuk issuance would be used by Al Rayan Bank to fund further growth in its asset book, which has increased by more than 23% over the last 12 months.
“The issuance of this ground breaking sukuk is a major landmark in the history of Al Rayan Bank, but it is also a significant development for the global Islamic finance sector which reinforces the UK’s position as a global hub for Islamic banking,” said Sultan Choudhury, Al Rayan Bank chief executive.
The instrument has been designed to ensure that it is recognisable as high quality liquid assets and as a securitisation under CRD (capital requirements directive) definitions; this has resulted in high levels of demand from conventional institutions as well as from Islamic investors, he added.
Such asset-backed transactions are relatively rare in Islamic finance, but depending on market conditions the bank could issue another sukuk in late 2019, Masraf Al Rayan said in a regulatory filing with the Qatar Stock Exchange.
The bank believes that there would be more opportunities to issue sukuk in the future and a higher potential for other Islamic banks to tap into the RMBS market.
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