Kuwait’s KIPCO Successfully Closes Maiden KD103.1m (US$336m) Hybrid Murabaha/Wakala Sukuk Issuance as More Corporate Issuers are Expected to Enter the Market

The Kuwait Projects Holding Company (KIPCO), one of Kuwait’s largest multi-sectoral investment companies, successfully completed its maiden Sukuk issuance of KD103.1 million (US$335.8 million) in June 2023. Kuwait is a relative latecomer to Sukuk issuance in the GCC region. Not surprisingly, this issuance is the first ever KD denominated Sukuk transaction by a Kuwait incorporated corporate. KIPCO’s main business sectors are financial services, energy, media, real estate, manufacturing and education.

The Sukuk has a hybrid Murabaha and Wakala structure, approved by the Sharia’a Advisor, Kuwait Finance House (KFH). The trust certificates were issued by Kuwait Projects Company Sukuk Limited (the Trustee), incorporated in Cayman Islands as an exempted company with limited liability, with KIPCO as the obligor.

The transaction comprised two tranches – a 6-year KD66.05 million (US$215.1 million) Fixed Rate Certificates issuance due in 2029; and a 6-year KD37.05 million (US$120.7 million) Floating Rate Certificates issuance due in 2029. Both tranches were issued under Kuwait Projects Company Sukuk Limited’s US$2 billion Trust Certificate Issuance Programme. This is the inaugural issuance under the Programme, which is a multi-currency programme. The initial transaction under the Programme, according to KIPCO, is denominated in KD with future issuances in other currencies.

Following approval by the Capital Market Authority (CMA) of Kuwait and the company’s board of both the Programme and the issuance, KIPCO mandated KFH Capital, Kamco Invest and Warba Bank to act as joint lead managers and placement agents of the transaction and to arrange a series of investor meetings and calls with potential investors in the UK, Europe, the Middle East and Asia.

According to KIPCO, the Floating Rate Certificates accounted for 36% of the total issuance at KD37.05 million. The initial profit rate for these certificates was set at 7% per annum (which is 3% over the Central Bank of Kuwait Discount Rate provided that the floating rate profit shall never exceed 7.5%). The Fixed Rate Certificates accounted for 64% of the total issuance at KD66.05 million, offering a 6.5% profit per annum. The profit payment on both certificates will be paid semi-annually. The underlying asset pool for both tranches comprise 55% tangibles and 45% Murabaha assets.

The proceeds from the issuance will be used for general corporate purposes, mainly to refinance existing facilities that are coming due in 2023/24.  

According to Sunny Bhatia, KIPCO’s Group Chief Financial Officer, “This issuance represents a landmark transaction, being the first ever KD denominated Sukuk transaction by a Kuwait incorporated corporate. We are excited to be tapping into the deep pool of Sharia’a-compliant capital and contributing to its development in Kuwait. The transaction reflects the continued success of our proactive liability management initiatives aimed at raising long-term financing, extending the tenor of our existing liabilities to strengthen KIPCO’s capital structure and aligning the liabilities profile with our investment holding strategies. We would like to thank the Kuwait Capital Markets Authority, our investors and our joint lead managers – KFH Capital, Kamco Invest and Warba Bank – for their support and continued confidence in KIPCO’s capital markets initiatives.”

Mr Bhatia added that KIPCO is always looking at various alternatives of financing to address, not just the maturity, but also the required funding needs which arise as a result of the growth plans of the company’s core portfolio companies and also the new expansion opportunities.

According to KFH Capital CEO, Abdulaziz Al Marzooq, the debut KIPCO issuance is important because it would pave the way for other prospective first time corporate Sukuk issuers in the Kuwaiti marketplace to raise funds in different currencies. 

The certificates will be listed on the International Securities Market of the London Stock Exchange. 

KIPCO announced a net profit of KD5.1 million (US$16.6 million) for the first three months of 2023, an increase of 59% from the KD3.2 million (US$10.4 million) reported in Q1 2022. Consolidated revenue totalled KD313.7 million (US$1.02 billion), an increase of 93% from KD162.2 million (US$529.1 million) reported for the same period in 2022. Similarly, the company’s consolidated assets increased by 4% to KD11.8 billion (US$38.5 billion), up from KD11.4 billion (US$37.2 billion) for the same period.

Sheikha Dana Naser Sabah Al Ahmad Al Sabah, KIPCO’s Group Chief Executive Officer, stressed that “The positive results of the first three months of 2023 reflect the performance of our portfolio companies. Our commercial banking sector, namely our operation in Jordan, has reported positive growth, together with the energy and the industrial and logistics sectors that were added to our portfolio as a result of the recent merger with Qurain Petrochemical Industries. We strive to build a holding company that is strong and able to withstand market volatilities. These results demonstrate our efforts to ensure that KIPCO’s core businesses continue to deliver enhanced positive performance, stemming from streamlined operations that are both efficient and effective.”

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