Bloomberg/Dubai
Sharjah Islamic Bank’s $400mn sukuk sale attracted nine times as much in bids, signalling investor appetite for Shariah-compliant debt from the region.
Sharjah Islamic Bank, which is part owned by the emirate of Sharjah and Kuwait Finance Co, is rated BBB+ by S&P
The Sharjah-based bank, which has the third-lowest investment grade rating at Standard & Poor’s, received about $3.75bn in bids, two people familiar with the deal said on May 19. Islamic Development Bank, a Saudi Arabia- based multi-lateral lender, issued $750mn of debt last week.
“Sharjah Islamic’s issue demonstrates to the market that there’s a huge amount of pent up demand for Gulf paper, specifically Islamic after a slowdown in sales,” said Mark Watts, head of fixed-income at National Bank of Abu Dhabi’s asset management group, which manages 4.1bn dirhams ($1.1bn). “We’ve purchased the sukuk for our clients.”
Saudi Electricity Co and Qatar Islamic Bank are among issuers planning to return to the Islamic debt market as borrowing costs declined to 4.52% on May 18, the lowest since September 2005, the HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index shows. Sales of Islamic debt in the six-member Gulf Co-operation Council region, excluding Islamic Development, slumped 41% to $1.36bn this year, data compiled by Bloomberg show, amid political unrest in the Middle East, including Bahrain.
Progress on debt restructuring in the UAE, which has been spared unrest that toppled presidents in Egypt and Tunisia, has boosted investor confidence. State-owned Dubai World signed an accord with creditors to alter terms on about $25bn of debt on March 23. The government last week bailed out Dubai Bank, an Islamic lender owned by Dubai Holding and Emaar Properties, after loan losses rose.
Sharjah Islamic, which is part owned by the emirate of Sharjah and Kuwait Finance Co and rated BBB+ by S&P, priced five-year notes to yield 270 basis points more than similar maturity mid swaps on May 18.
“The sukuk priced on the very tight end,” Tarek Elalaily, the London-based director of Middle East and North Africa fixed-income sales at New York-based Cantor Fitzgerald, said in a phone interview on May 19. “Sharjah Islamic is a mid-size bank at best and if it weren’t for the broad demand, it would have priced north of 300 basis points above mid swaps.”
The bank hired HSBC Holdings and Standard Chartered to manage last week’s sale. Calls to Sharjah Islamic’s media department to confirm the demand for its bond last week and on Sunday weren’t answered.
Islamic Development, which has the highest rating at S&P, sold five-year Islamic bonds at 35 basis points above the benchmark mid-swap rate. The bank is mulling the sale of another $700mn sukuk following the “success” of last week’s issue, its vice president of finance Abdul Aziz Al Hinai said in Jeddah. The debt will most likely be sold next year, according to Zakky Bantan, an executive at the Treasury department said in Jeddah.
Islamic Development hired HSBC, BNP Paribas, Standard Chartered and Deutsche Bank AG for the transaction. It’s sukuk is not included in the GCC’s total sales figure as the bank’s special purpose vehicle, which issued the debt, is based in Jersey, the Channel Islands.
The yield on Dubai’s 6.396% dollar sukuk fell to 4.596% on May 19, the lowest on record, according to prices on Bloomberg. It since rose six basis points to 4.66% today, the data show.
The Bloomberg-AIBIM-Bursa Malaysia Sovereign Shariah Index, which tracks the most traded ringgit-denominated bonds, rose to 102.444 last on May 20. The gauge has climbed 0.6% this quarter.
Average yields for GCC sukuk were unchanged at 4.55% on May 20, the HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index shows. The extra yield investors demand to hold GCC debt over the London interbank offered rate fell 13 basis points to 278, the lowest since August 2008, the data show.
Gulf sukuk have returned 3% this quarter, the data show. Fixed-income securities in developing nations also gained 3% since the end of March, according to JPMorgan Chase & Co’s EMBI Global Diversified Index.
Riyadh-based Saudi Electricity may sell as much as $1.5bn in Islamic bonds by year-end or early 2012, the state- controlled utility’s chief executive officer Ali al-Barrak said May 18. Albaraka Banking Group, Bahrain’s biggest publicly traded lender, may issue $300mn of debt in September, CEO Adnan Ahmed Yousif said on March 28.
Sharjah Islamic has a five-year $225mn floating-rate note maturing in October.
“Investors are ready to take a look at new paper,” Dubai- based Louis Najem, a fixed-income sales trader at Rasmala Investment Bank, said by e-mail on May 19. “There’s enough liquidity in the market to be able to absorb the forthcoming issues.”
