Sheikh Mansour’s ESIC Maiden $600m Benchmark Sukuk is 6.2 times Oversubscribed as Investor Appetite for International Issuances Remain Unsated

Emirates Strategic Investments Company (ESIC), the Abu Dhabi-based multi-sector diversified holding company wholly-owned by Sheikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs of Abu Dhabi, successfully priced its maiden benchmark US$600 million 5-year hybrid Wakala/Murabaha Sukuk on 23rd July 2019. ESIC’s portfolio consists of recurring revenue assets, with investment interests primarily in the financial, aviation and real estate sectors in the UAE. As of 31 March 2019, ESIC’s total assets exceeded USD$2.1 billion.

The senior unsecured certificates were issued under ESIC’s recently established US$1bn Sukuk Programme, which is listed on the London Stock Exchange. The issuance was priced at a profit rate of 3.939% per annum (equivalent to 215 basis points over the 5-year US Mid Swap Rate), but which was 35 basis points tighter than initial estimates, according to ESIC.

ESIC, which is rated Baa3 by Moody’s Investors Service with a stable outlook, had mandated First Abu Dhabi Bank and Standard Chartered Bank in early July as Joint Global Coordinators to structure and arrange a benchmark Sukuk offering. Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, National Bank of Bahrain, Standard Chartered Bank and Warba Bank acted as Joint Lead Managers to the transaction.

“Emirates Strategic Investments Company’s Baa3 rating is supported by its strong financial profile and a good base of recurring income from investment properties and equity investments. This partially offsets the company’s asset and geographic concentration as well as the weak property market outlook in the United Arab Emirates” stressed Lahlou Meksaoui, a Moody’s Lead Analyst.

In a statement, ESIC confirmed that investor demand for the Sukuk was “exceptionally strong” as evidenced by a US$3.7 billion orderbook, representing an oversubscription rate of 6.2 times. More than 135 investors from over 20 countries participated in the transaction.

In terms of distribution, 61% of the Sukuk was allocated to international investors (33% to Asia, 24% to Europe and 4% to US offshore), and 39% to GCC investors. By type, 62% were fund managers, 25% were banks, 9% were private banks and 4% were central banks and pension funds.

According to the company, the transaction followed a comprehensive marketing strategy aimed at introducing ESIC’s credit to the international fixed income community. A senior management delegation met with investors in Singapore, Hong Kong, Abu Dhabi, Dubai and London. ESIC is the first corporate from Abu Dhabi to access the market in 2019, allowing it to fully capitalize on the overwhelming investor demand for Abu Dhabi credits.

Over the past decade the ESIC Group along with its affiliates has engaged in diversified equity investments within prominent companies across a range of sectors. Some notable investments include First Abu Dhabi Bank (FAB), First Energy Bank and Air Arabia. “Typically, by implementing an approach with a methodical evaluation of economic drivers and industry fundamentals we have structured a sustainable, liquid and long-term investment portfolio producing the best possible risk-adjusted returns by investing in companies that demonstrate sound management, strong financial performance and strong corporate governance,” said ESIC in a statement.

“The Sukuk,” explained Khalid Deemas Al Suwaidi, Chief Executive Officer of ESIC, “promotes the development of capital markets and Islamic finance in the UAE, as well as setting an international benchmark for other UAE private companies to follow. ESIC’s success is expected to pave the way for other privately held entities from the UAE to access the international capital markets. We are very pleased with the successful outcome and the international investor demand that we received, which reflects the UAE’s strong standing in the international community”.

The ESIC Sukuk is the latest of a spate of Sukuk offerings by UAE corporates in 2019. Dubai Islamic Bank (DIB)led the way in January 2019, followed by First Abu Dhabi Bank (FAB), Sharjah Islamic Bank, and Dubai’s Majid Al Futtaim (MAF), which issued the first Green Sukuk by a corporate in the Gulf Cooperation Council (GCC) region in May.

At the time of writing, and according to banking sources in Dubai, the government of Dubai had mandated four banks – Dubai Islamic Bank, HSBC, National Bank of Abu Dhabi and Standard Chartered Plc – to arrange the proposed Sukuk offering in a low spread environment. Dubai’s state-owned utility Dubai Electricity and Water Authority (DEWA) has also indicated its intention to raise US$1 billion through a Sukuk issuance.

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