It seems that issuers are seeking flight to quality and safety as sovereigns, multilaterals, banks and corporates in the Middle East, South East Asia and Africa are turning to domestic and global Sukuk issuances to help mitigate the health and economic impact of Covid-19 as well as the sharp fall in crude oil and commodity prices (save gold).
In June 2020 alone, the oldest commercial Islamic bank in the world and a prolific repeat issuer of Sukuk, Dubai Islamic Bank (DIB), for instance, successfully raised US$1.3 billion through two transactions – a benchmark 5-year US$1 billion Sukuk on 10 June and a subsequent US$300 million tap issuance on 16 June of the benchmark offering.
A tap issue is a procedure that allows borrowers to sell bonds/Sukuk or other short-term debt instruments from past issues. They are issued at their original face value, maturity, and coupon rate, but sold at the current market price.
DIB, rated A3 by Moody’s and A by Fitch (both Stable), in a statement confirmed that it had priced a US$1 billion 5-year Sukuk at a profit rate of 2.95% per annum, which is equivalent to 245 basis points over the equivalent tenor Mid Swap (MS) rate. “DIB’s US$1 billion Sukuk is a landmark transaction as it is the first public benchmark Sukuk from a regional financial institution after the COVID-19 market disruption with the last Sukuk issuance from the GCC being in February 2020. As a leading bank, DIB has in effect reopened the international Islamic capital markets for FI issuers from the UAE in the post COVID-19 environment,” said the Bank.
The Bank had mandated Bank ABC; Dubai Islamic Bank; Emirates NBD Capital; First Abu Dhabi Bank; HSBC; ICBC; The Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IsDB) Group; KFH Capital; Sharjah Islamic Bank and Standard Chartered Bank to act as Joint Lead Managers and Bookrunners on the transaction and to arrange a series of investor calls
The deal was priced intraday after completing a final global investor call, which was attended by several local, regional and international investors. The Sukuk attracted more than 170 high-quality investors “reaffirming their commitment to UAE and DIB in particular.”
The success of DIB’s offering can be gauged by the substantial international interest in the Sukuk which was oversubscribed 4.5 times. The orderbook rose to over US$4.5 billion – with nearly 50% of subscriptions emanating from outside the Middle East & North Africa (MENA) region.
“Despite the challenging global environment due to the COVID-19 pandemic,” explained Dr. Adnan Chilwan, Group Chief Executive Officer, DIB, “we are grateful for the positive response from the global investor community. With the issuance being subscribed nearly 4.5 times, DIB continues to remain an attractive credit in the capital market space. This transaction is a clear testament to the confidence the global markets place in the bank’s robust fundamentals, as well as investor comfort in the broader Dubai and UAE economy. It also clearly points towards investors’ appreciation of the economic measures and policy response of the UAE towards the pandemic”
The Sukuk was issued as a drawdown under DIB’s US$7.5 billion Trust Certificate Issuance Programme which is listed on Euronext Dublin and NASDAQ Dubai.
Prior to these two latest forays into the Sukuk issuance market, DIB last issued a benchmark 5-Year US$750 million Sukuk in November 2019, its second Sukuk in the international market in 2019 – following a US$750 million Additional Tier 1 (AT1) Perpetual Non-Call Sukuk in January 2019.
In comparison to the June 2020 issuances, the November 2019 Sukuk offering was priced at a profit rate of 2.95% per annum, which is equivalent to 140 basis points (bps) over the 5-year Mid Swap (MS) Rate, while the January 2019 issuance at a profit rate of 6.25% per annum, which is equivalent to 366.4 bps over the implied 6-year US Treasury yield.
The proceeds from the Sukuk issuances according to the Bank is earmarked to support its customers and the business community as economies start to overcome challenging market conditions due to the coronavirus pandemic.
The benchmark US$1 billion and the US$300 million tap issuance were listed on Nasdaq Dubai on 16 and 30 June respectively. DIB, according to Nasdaq Dubai, is the leading UAE-based Sukuk issuer by value on the region’s international exchange with a total of US$6.3 billion including the latest two issuances. Dubai is one of the largest centres for Sukuk listings in the world with a total listed value on Nasdaq Dubai now standing at US$71.09 billion. By value, 43% of the listings are from UAE issuers and 57% from overseas issuers.
“In line with the effective policies of the UAE leadership,” explained Dr Chilwan, “we will continue to support individuals and businesses in the UAE and beyond as the world emerges from the difficulties faced over recent months. The listing on Nasdaq Dubai provides the issuance with close links to regional and global investors from a well-regulated platform. Our overall strategy and refreshed tactics are based around greater transparency and governance as we move forward during this global pandemic by forming deeper links with regional and global investors.”
Nasdaq Dubai’s Chairman, Abdul Wahed Al Fahim, reiterated the bourse’s commitment to the development of the local and regional Islamic capital market stressing that “the deep and longstanding relationship between Nasdaq Dubai and DIB will continue to provide important benefits to investors and promote economic well-being in the UAE and overseas. The issuance and listing of DIB’s Sukuk reflect the further development of the Sukuk market as an effective means of raising capital from regional and global investors.”
DIB earlier this year reported encouraging results for financial year 2019 as it closed an acquisition deal with Noor Bank. Total income reached AED13,684 million, up by 17% YoY compared to AED11,730 million. Group net profit increased to AED5,103 million, up 2% year on year compared to AED 5,004 million.
Similarly, net financing and Sukuk investments rose to AED184.2 billion up by 5% YoY, while total assets stood at AED 231.8 billion, up by 4% year on year and Customer Deposits increased to AED164.4 billion up by 6% YoY.