QIB Successfully Prices Debut US$800m Formosa Sukuk as Qatari Banks Venture into more Exotic Markets to Raise Funds

Another sign that GCC Islamic banks are becoming more adventurous and mature in their fund-raising diversification strategies is the latest foray by Qatar Islamic Bank (QIB), the oldest and largest Islamic bank in Qatar in terms of assets, into the Formosa bond/now Sukuk market.

On 7 February 2020, QIB successfully executed the first Formosa Sukuk issuance by a Gulf Cooperation Council (GCC) financial institution under its US$4 Billion Trust Certificate Issuance Programme, which was initially established in May 2019 but amended in September in the same year.

Under this 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 issuance to US$800 million.

In a statement, QIB stressed that the issuance is the first ever Reg S Sukuk issue to be listed on the Taipei (Stock) Exchange and attracted strong interest from investors globally especially Asia. The Sukuk was issued by QIB Sukuk Limited, a special purpose vehicle incorporated in the Cayman Islands, on behalf of QIB, the obligor, and matures on 7 February 2025. The final order book exceeded US$1bn. The Sukuk was priced at a spread of 135 basis points over 3 Month LIBOR.

The transaction was solely arranged by Standard Chartered Bank (Taiwan) Limited and the Sukuk certificates are dual listed on the Taipei Exchange and the Irish Stock Exchange (Euronext Dublin).

Qatar’s Islamic banks continue to access the international markets successfully to raise funds despite the on-going Saudi-led economic blockade of the country. The success of this transaction, stressed QIB, confirms the trust of international investors in Qatar’s economy, QIB’s strategy and the strength of its financial position.

QIB, rated A1 by Moody’s, A- by S&P, A by Fitch (all stable), added that the transaction reflects the resilience and positive outlook of the Qatari economy, the strength of its financial position and the confidence of international investors, especially those based in Asia, in Qatar’s credit and country risk.

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.

QIB last went to the international market in March 2019, when it successfully 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).

This follows the benchmark US$500 million Sukuk issuance by Qatar International Islamic Bank (QIIB) under its US$2 billion Trust Certificates Programme in February 2019. In addition, Al Rayan Bank has also reportedly received approval from its Board and the Central Bank of Qatar to issue Sukuk in the international market.

Sukuk issuers have been open to issuing commercial papers in currencies and markets other than in their traditional currencies and markets. Sukuk have been issued by foreign issuers in the US dollar, sterling, Euro, Malaysian ringgit, Chinese renminbi, Japanese yen and the Singapore dollar. The Formosa Sukuk issuances are unique in that the currency of the certificates are denominated in US dollars.

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