Qatar Islamic Bank Closes Second Sukuk Offering in 2020 with Benchmark US$750m Sukuk Issuance

Qatar Islamic Bank (QIB), the oldest and largest Islamic bank in Qatar in terms of assets, successfully closed its latest Sukuk issuance in the international market, a benchmark 5-year US$750 million Wakala/Mudaraba Sukuk in October 2020.

The Sukuk was issued by QIB Sukuk Limited, a special purpose vehicle incorporated in the Cayman Islands as an exempted company with limited liability, on behalf of the Obligor, QIB, under its US$4 billion Trust Certificate Issuance Programme. The Programme, which was initially established in May 2019 but amended in September in the same year, was arranged by Crédit Agricole, QInvest and Standard Chartered Bank, and like the Sukuk certificates is listed on Euronext Dublin.

According to QIB, which is rated A1/A-/A (all with a stable outlook) by Moody’s Investors Service/Standard & Poor’s/Fitch Ratings respectively, the transaction was priced at profit rate of 1.95% per annum, which is equivalent to a credit spread of 155 basis points (bps) over the 5-year MS (Mid Swap) Rate. The profit rate achieved, said QIB in a disclosure to the Qatar Stock Exchange, is the lowest ever paid by QIB on their fixed rate Sukuk issuances.

QIB had mandated QInvest and Standard Chartered Bank in September to act as Joint Global Coordinators on the transaction. Citi, Credit Agricole, Dukhan Bank, HSBC, QInvest, QNB Capital and Standard Chartered Bank acted as Joint lead Managers and Joint Bookrunners with Warba Bank as the Co-Manager. QIB gave initial price guidance of around 185 basis points over MS for the Sukuk, but due to the demand for the certificates the pricing tightened by 30 bps to close at 155 bps over 5-year MS.

The success of the transaction came on the back of a two-day marketing strategy aimed at updating international and regional investors with QIB’s strategy and financial performance. The management team held a global investor call and multiple one-on-one calls with institutional investors from Asia and Europe prior to placing the Sukuk. Investors, said QIB, took comfort from the bank’s strong credit fundamentals and sound business strategy.

According to Bassel Gamal, Chief Executive Officer of QIB, the bank “is very pleased with the success of this transaction, which highlights the confidence placed by investors in Qatar, the Bank’s board, management team and its strategic direction. We are proud to have access to a diverse and international investor base, which allows us to implement our funding strategy in a timely and cost-efficient manner. The capital markets continue to remain important for us and we appreciate investors’ confidence in our name.”

Not surprisingly, investor demand was strong and the orderbook reached US$2.2 billion (representing 2.9 times oversubscription) from approximately 100 investors. In terms of investor categorization, 40% were allocated to banks, 31% to asset managers, 8% to private banks, and 21% to sovereign accounts. More importantly, the investor base was diversified geographically, with 44% of the Sukuk being allocated to the Middle East, 24% to Asia, 17% to Europe and 15% to other countries.

QIB is the pacesetter of the Islamic financial institutions in Qatar. Earlier this year, it was the first Islamic bank to venture into the Formosa bond/Sukuk market when it successfully completed the first Formosa Sukuk issuance by a Gulf Cooperation Council (GCC) financial institution. That issuance similarly came under the bank’s US$4 Billion Trust Certificate Issuance Programme.

QIB initially sought to issue a benchmark US$650 million floating rate Sukuk tranche with a 5- year tenor as part of the Islamic bank’s strategy to diversify funding from new markets. Because of the strong demand for the certificates, QIB decided to upsize the Formosa issuance to US$800 million. As such, with this latest Sukuk issuance – its second in 2020 – QIB has raised a total of US$1.55 billion from the international market to date in this year. 

A Formosa bond is a bond issued in Taiwan but denominated in a currency other than the New Taiwan Dollar. They are issued by the Taiwan branches of publicly traded overseas financial institutions and to be traded must have a credit rating of BBB or higher. The Formosa bonds/Sukuk have increasingly become an attractive funding choice for many types of overseas issuers.

QIB follows Qatar National Bank (QNB), the largest bank in Qatar in terms of assets, into the Formosa bond market. QNB issued a US$600 million 40-year Formosa bond in mid-January. According to GCC banking sources, QIB and other Islamic banks in Qatar are likely to access the Formosa Sukuk market in 2021 again, given the uncertainty of the global economic and financial market conditions as a result of the continued impact of COVID-19 especially in the US, UK and European Union markets.

Qatar’s Islamic banks also continue to access the international markets successfully to raise funds despite the on-going Saudi-led economic blockade of the country.

Prior to this October issuance, QIB last went to the international market in March 2019, when it priced a Sukuk offering through a benchmark fixed rate Regulation S 5-year Senior Unsecured US$750 million Five-Year Wakala/Mudarabah Sukuk. The transaction was priced at a profit rate of 3.982 per cent (equivalent to a credit spread of 150 basis points over US$ Mid-Swaps).

QIB reported net profit of QR2,216.5 million for the period ended on 30 September 2020 compared to QR2,215.4 million for the same period in 2019. Earnings per Share (EPS) amounted to QR0.94 for the period ended 30 September 2020, matching that for the same period in 2019.

QIB’s total assets increased by QAR2,283.3 million (US$627.3 million), or 1.4 per cent., to QAR165,802 million (US$45,550 million) as at 30 June 2020 from QAR163,519 million (US$44,923 million) as at 31 December 2019.

QIB’s total liabilities and equity of unrestricted investment accountholders increased by QAR2,748.8million (US$755.2 million), or 1.9 per cent, to QAR144,109 million (US$39,590 million) as at 30 June 2020 from QAR141,360 million (US$38,835 million) as at 31 December 2019. The increase at 30 June 2020 was due to an increase in Sukuk Financing of QAR3,282 million (US$902 million), or 30 per cent.

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