KIB Returns to International Market After an Absence of More than 12 Months with a US$300m Subordinated Tier II Sukuk Wakalah Issuance

Kuwait International Bank (KIB), formerly the Kuwait Real Estate Bank which converted into a fully Sharia’a-compliant institution, returned to the Sukuk market on 22 November 2020 after an absence of over a year with its latest offering – a US$300 million Subordinated Tier II Sukuk Al Wakalah.

The Sukuk was issued through KIB Sukuk Ltd, a wholly-owned special purpose vehicle, on behalf of the obligor, KIB. The issuance has a tenor of 10 years, callable at each periodic distribution date after 5 years, and matures on 30 November 2030. The Sukuk was issued under KIB’s US$2 billion Sukuk Issuance Programme, launched in September 2020 following approval of the Central Bank of Kuwait.

Prior to this transaction, KIB issued a US$300 million AT1 Perpetual Tier 1 Capital Basel III Mudarabah Sukuk on 29 May 2019.

Following approval from the Capital Market Authority of Kuwait, KIB mandated Citigroup Global Markets and Standard Chartered Bank to coordinate the transaction and to arrange a series of virtual investor calls in Europe, Asia and the Middle East.

In addition to the above two institutions, Boubyan Bank, Emirates NBD, First Abu Dhabi Bank, KFH Capital, KAMCO Investment Company and the Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IsDB) Group, acted as joint lead managers and bookrunners to the transaction.

The initial price guidance was set around 2.75% but with the strong demand from Middle East and North Africa (MENA), Asian and European investors as indicated by a strong orderbook, the pricing tightened. The transaction was eventually priced at a tight profit rate of 2.375% per annum payable bi-annually.

On 24 November 2020, Fitch Ratings assigned a final long-term ‘A-’ to the Subordinated Tier II Sukuk certificates, and a final long and short-term ‘A+/F1’ rating to the Senior Unsecured Certificates to be issued under KIB’s US$2 Billion Sukuk Programme. These ratings are in line with Fitch’s KIB Obligor Rating of A+. The certificates are listed on the London Stock Exchange.

The issuance, according to KIB’s disclosure to the Boursa Kuwait, received very strong investor demand and was oversubscribed 9 times with the order book closing at US$2.7 billion. The transaction had a wide globally diverse distribution with the final allocation going to MENA investors (48%), Asia investors (25%), European investors (24%) and offshore US investors (3%).

The proceeds from the issuance, according to KIB, will be used “to enhance the Bank’s capital base as per the Capital Adequacy Ratio Standard – Basel 3.”

The Sukuk, says KIB, has been issued as an advanced capital instrument under Basel III Capital Adequacy compliance and in line with the rules and regulations of the Central Bank of Kuwait and the Capital Markets Authority, to be made available for trading in the secondary market once issued. It adds a new source of capital to KIB, which will support diversification of its capital and funding as well as supporting the expansion strategy and enhancing the Bank’s capital base in accordance with Basel III guidelines.

The Programme and Sukuk issuance, explained Mohammed Saeed Al Saka, Deputy CEO of KIB, “will have a positive impact on the liquidity position and on diversifying the sources of long-term funding needs of the bank, while enhancing some of the regulatory ratios associated with the Central Bank of Kuwait’s instructions.”

Issuers in the Gulf Cooperation Council (GCC) countries and in South East Asia have turned to the international and domestic debt markets to raise funds to finance balance sheet requirements which has been badly affected by the weak oil and commodity prices and the health and economic impact of the COVID-19 pandemic. All the indications are that Sukuk issuances in 2020 will at least equal if not surpass the record US$120 billion of primary Sukuk issuances in 2019.

In Kuwait, for instance, another Islamic bank, Boubyan Bank, confirmed in late November 2020 that it has obtained approval from the Capital Markets Authority of Kuwait for a benchmark US$500 million AT1 Sukuk issuance.

In anticipation of the proposed issuance, Standard & Poor’s affirmed Boubyan Bank’s long-term issuer credit ratings at ‘A-/Stable’ and the Bank’s Obligor Rating of ‘A’.

“The stable outlook on Boubyan reflects its good retail entrenchment and our expectations that its business and financial profile will remain resilient to macro-economic headwinds over the next 12-24 months,” said S&P in its rating rationale.

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