KFH Returns to International Sukuk Market with US$1bn Tier I Sukuk in January 2024
The months of December 2023 and January 2024 have seen an unprecedented proliferation of Sukuk issuances not experienced in recent years including from new jurisdictions such as the Republic of the Philippines. The majority of primary Sukuk origination transactions are from the Gulf Cooperation Council (GCC) countries namely Saudi Arabia, the UAE and Kuwait, with others from Pakistan and Malaysia.
On 10th January 2024, it was the turn of Kuwait Finance House (KFH), the second oldest commercial Islamic bank in the world having been established in 1978. KFH successfully issued and priced a 5-year Senior Unsecured US$1 billion Tier 1 Sukuk Wakala/Murbaha, which was closed on 17 January 2024.
KFH is a latecomer to the Sukuk market because of its then conservative Sharia’a Advisory Council which frowned upon accessing the debt capital market. Nevertheless, under new leadership the Bank issued its inaugural Sukuk – a benchmark Reg S US$750 million Sukuk Mudaraba with a Perpetual Non-call 5.5-year maturity –in June 2021.
It seems that KFH regards Sukuk origination now as an essential element of its debt raising mix. In April last year, KFH established a US$4 billion Trust Certificate Issuance Programme under a special purpose vehicle, the KFH Sukuk Company Limited which is listed on the London Stock Exchange (LSE’s) International Securities Market (ISM), to which Fitch Ratings assigned an ‘A’/’FI’ rating, in line with KFH’s Long- and Short-Term Foreign-Currency Issuer Default Ratings of ‘A’ and ‘F1’.
The rating applies only to senior unsecured certificates issued under the programme. The Programme was arranged by HSBC, Dubai Islamic Bank and KFH Capital.
Indeed, this latest US$1 billion offering is the first issuance under the US$4 billion Trust Certificate Issuance Programme and issued by Kuwait Sukuk Company on behalf of its Obligor, Kuwait Finance House.
The Bank had mandated KFH Capital to act as sole coordinator of the transaction and together with HSBC, Dubai Islamic Bank, First Abu Dhabi Bank, Boubyan Bank, Standard Chartered, Abu Dhabi Commercial Bank, SMBC Nikko, Al Rajhi Capital, Arab Banking Corporation and Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IsDB) Group to act as joint lead managers and bookrunners to the transaction, and to arrange a series of investor calls and meetings in the UK, Europe, Offshore US Accounts, the GCC and Asia. Wafra International Investment Company participated as a co- manager for the issuance.
Robust Investor Demand
KFH Acting Group Chief Executive Officer, Abdulwahab Iesa Al Rushood in a disclosure to Boursa Kuwait said that the Sukuk were priced at 105 basis points (bps) above the US Treasury Bonds, with a yield of 5.011% per annum payable semi-annually in arrears.
The Sukuk issuance attracted orders exceeding US$3.45 billion and was oversubscribed by more than 3 times. The issuance received demand from regional and global investors (the Middle East, Europe and Asia), most of them banks, financial institutions, and investment funds.
Al Rushood thanked the investors for their trust and extended his gratitude to the lead managers, coordinators, partners, and stakeholders for the successful completion of the issuance in record time. The issuance was oversubscribed in one day, which according to KFH reflected the confidence investors placed in the Bank, its capabilities, strategy, and reputation.
The proceeds from the Issuance will be used to expand KFH`s capital base, finance its operations and diversify its financing sources and investor base. Additionally, the new issuance gives KFH the opportunity to increase its financing and investment capabilities, support infrastructure projects and the local economic sectors, as well as help customers with their expansion plans regionally and globally.
Given the particular significance of Sukuk as a financing instrument in the global markets, Al Rushood emphasized that the Sukuk market enjoys high demand from investors and plays a role in enhancing the global capital markets, and helps issuers implement their future expansion and growth plans.
The Sukuk certificates are in the process of being listed on the London Stock Exchange’s International Securities Market (ISM) from 17 January 2024.