Kuwait’s Boubyan Bank is the latest GCC financial institution to issue a Sukuk at the start of 2020. In a disclosure to Boursa Kuwait, Adel Abdul Wahab Al Majed, the CEO of Boubyan Bank, confirmed that the bank has successfully issued a US$750 million benchmark Sukuk on 12 February 2020.
“We would like to state that the aforementioned Sukuk was priced on 11 February 2020 and the total demand for the Sukuk amounted to US$4.59 billion, oversubscribed by 6.12 times, reflecting the positive response from investors to the performance of our bank and its business,” explained Mr Al Majed. Boubyan Bank had received approval from its Board and the Capital Market Authority of Kuwait in November 2019 to issue a Sukuk of between US$500 million to US$800 million.
The Sukuk certificates were issued through Boubyan Sukuk Limited, a special purpose vehicle wholly-owned by Boubyan Bank KSCP, the obligor, which is rated A3/A/A+ by Moody’s Investor Service, Standard & Poor’s (S&P) and Fitch Ratings.
The Senior Unsecured Sukuk, which is based on a Wakala/Commodity Murabaha structure, has a tenor of 5 years and matures on 18 February 2025. The transaction was priced at a coupon rate of 2.593% and the Sukuk certificates, rated A+ by Fitch Ratings, are in the process of being listed on Euronext Dublin.
Boubyan Bank set the guidance price for the issuance at 150 basis points (bps) over mid-swaps (MS), but due to the strong demand for the certificates, the final price was set at 120 bps over MS, following a series of meetings with fixed income investors in Dubai and London.
HSBC and Standard Chartered acted as global coordinators to the transaction, which was completed under English law. The joint lead managers were Bank ABC, Boubyan Capital, First Abu Dhabi Bank, HSBC, Islamic Corporation for the Development of the Private Sector (ICD), KFH Capital, Kuwait International Bank, Standard Chartered, and Warba Bank.
According to Boubyan Bank, the issuance will have a positive impact on the liquidity position of the bank and will help to diversify the sources of long-term funding while enhancing the Boubyan Bank’s regulatory ratios as set by the Central Bank of Kuwait.
Boubyan Bank recently reported total assets for FY 2019 of KD5,300,548,000 compared with KD 4,344,778,000 in FY 2018. Total deposits similarly increased to KD4,347,226,000 in 2019 from KD KD3,720,935,000. Net profit for the year 2019 increased to KD62,677,00 from KD56,210,000 in 2018. Income from Murabaha and other Islamic financing facilities increased to KD207,629,000 in 2019 from KD182,942,000.
Kuwaiti banks have been slow to issuing Sukuk even though KFH Capital, the investment banking arm of Kuwait Finance House (KFH), has been involved as a joint lead arranger is several of the iconic Sukuk issuances over the last decade or so. Thus far Kuwait International Bank (KIB), Al Ahli Bank and Boubyan Bank have issued Sukuk, with the notable absentee being KFH. KIB issued a US$300 million AT1 Perpetual Tier 1 Capital Basel III Sukuk in May last year.
Of the six Gulf Cooperation Council (GCC) states, Kuwait and Oman have been latecomers to the Sukuk and Islamic debt capital markets. Oman has issued an Omani Riyal-denominated sovereign Sukuk and is reportedly planning to issue a debut Sukuk in the international market. This leaves Kuwait as the only GCC country yet to issue a sovereign Sukuk. In the case of Kuwait, it was largely due to the conservative approach of the Islamic banks, which include KFH, one of the oldest Islamic banks in the industry. In the case of Oman, it was a case of unfamiliarity of the Islamic capital market products.
But since the passing of a Sukuk law and regulations in Kuwait in 2017, the market has been warming up to Sukuk as a fund-raising instrument given the surge of such activity in neighbouring Saudi Arabia, Qatar, Bahrain and UAE, where both sovereign and corporate issuances are now the norm.