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KFH’s Maiden Benchmark US$750m Sukuk Mudaraba Finally Marks Entry of Industry Pioneer as June 2021 Sees Major Developments in the International Sukuk Market

Kuwait Finance House (KFH), one of the oldest commercial Islamic banks in the world, issued its debut Sukuk – a 5.5 year Perpetual non-callable benchmark US$750 million ATI Mudaraba Sukuk on 30 June 2021.

The Reg S Registered Form, Category 2 Tier I Capital Certificates were issued through KFH Tier 1 Sukuk Limited, incorporated in the Cayman Islands, on behalf of the Obligor, KFH.

KFH mandated KFH Capital and Standard Chartered Bank to act as global coordinators to the transaction and, together with Boubyan Bank, Dubai Islamic Bank, Dukhan Bank, Emirates NBD Capital, First Abu Dhabi Bank and Mizuho Securities as Joint Lead Managers and Joint Bookrunners, to arrange a series of investor calls with accounts in Asia, Europe, the Middle East and Offshore US.

The pricing was set on 23 June 2021 at a profit rate of 3.60% for the period from and including the Issue Date (30 June 2021) to but excluding the First Reset Date (30 December 2026 and every fifth anniversary thereafter). Resets on the First Reset Date and every five years thereafter will be on the basis of the Relevant Five Year Reset Rate plus the Margin. The benchmark rate was set at Interpolated 5.5-year US Treasury @ 0.971% with a margin of 262.9 basis points (bps).
The certificates are unrated underpinned by the Obligor’s A2 rating by Moody’s Investors Service (stable outlook) / A+ by Fitch Ratings (negative outlook). The Sukuk certificates were admitted for listing and trading on the Main Market of the London Stock Exchange on 1 July 2021.

According to Hamad Abdulmohsen Al-Marzouq, Chairman of KFH, the issuance was over-subscribed 2.8 times with the order book exceeding US$2 billion by close.

The proceeds of the Sukuk, added Al-Marzouq, will be used to support KFH`s Tier 1 capital in accordance with Central Bank of Kuwait instructions and Basel III requirements.

The new issuance he stressed gives KFH the opportunity to diversify its financing resources, increase its financial and investment capabilities, support infrastructure projects and the local productive economic sectors as well as help customers with their expansion plans regionally and globally.

Al-Marzouq explained that this landmark Sukuk is the largest issuance in Kuwait in terms of size and has the lowest yield for an AT1 issuance in the country. KFH Capital, he added, acting as global coordinator and joint lead manager for the Sukuk issuance along with other financial institutions, “has succeeded in strengthening its role in arranging Sukuk issuances regionally and globally.”

The demand for the Sukuk certificates came overwhelmingly from investors from the Middle East (85%), with Europe and Asia (6% each) and Offshore US Accounts (3%) getting the rest of the allocation. Banks and Private Banks accounted for 81% of the subscription followed by Fund Managers and others 19th respectively.

Al-Marzouq explained that the high demand on Sukuk reflects the confidence of investors from different regional and international capital markets in KFH and its capabilities and strategies, in addition to their trust in the Kuwaiti economy, the banking sector and the local market despite the current challenges posed by the impact of the COVID-19 pandemic.

The successful issuance of the KFH Sukuk is also “a clear indication of the bank`s strong credit, financial position and the prestigious position it enjoys among regional and global investors, in addition to its efficient operations and reliable and outstanding performance as one of the leading banking groups in the region.”

As at 31 December 2020, the KFH Group reported total assets of KD21,502.3 million (including financing receivables of KD10,747.5 million) and depositors’ accounts of KD15,317.3 million. For the year ended 31 December 2020, the Group had a net operating income of KD499.6 million and net profit attributable to shareholders of KD148.4 million.

For Q1 2021, KFH reported net financing income increasing to 5.3% to KD153.6 million; the cost to income ratio for the Group stabilized at 37.3%; financing portfolio increased 1.1% to KD10.9 billion, and deposit accounts stabilized at KD15.3 billion. Group total provisions and impairment charge decreased 25% to KD56 million, including financing, investment and other provisions.

Financing receivables at end Q1 2021 reached KD10.870 billion, an increase of 1.1% compared to end of year 2020, with most of the growth achieved in the corporate sector.

KFH reported net profit of KD50 million for Q1 2021 for KFH, an increase of 12.9% compared to the same period last year. Earnings per share Q1 2021 reached 5.97 fils, an increase of 12.6% compared to the same period last year, whilst total operating expenses dropped by 6.5%. The capital adequacy ratio reached 16.98% which is above the minimum limit required by regulators.

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