Dubai Islamic Perpetual Bond Price Beats Estimates on Yield HuntSherine El Madany
Dubai Islamic Bank PJSC priced its $1 billion perpetual sukuk lower than investors estimated as the lender benefited from demand for Shariah-compliant debt.
The biggest Islamic lender in the United Arab Emirates paid a profit rate of 6.25 percent on its perpetual sukuk with an orderbook in excess of $14 billion, the bank said yesterday. Investors estimated the lender would pay between 6.5 percent and 7.14 percent, according to a Bloomberg survey.
“Dubai Islamic Bank should be very pleased, there was obviously strong demand,” said Abdul Kadir Hussain, chief executive officer at Mashreq Capital DIFC Ltd. “Primarily it was a hunt for yield. There aren’t too many sukuk out there paying 6 percent anymore.”
Global demand for Shariah-compliant debt is growing, with Islamic financial assets set to double to as much as $3 trillion by 2015, Standard & Poor’s estimates show. The yield on Abu Dhabi Islamic Bank PJSC hybrid perpetual sukuk sold in November was at 6.28 percent today, data compiled by Bloomberg show
Banks in the six-nation Gulf Cooperation Council are seeking to build their Tier-1 capital ratios as they attract deposits and extend loans to support state investment programs and retail demand. Dubai Islamic Bank said on March 5 its shareholders approved raising as much as $1 billion to boost its Tier-1 capital, which includes common stock, retained earnings, and perpetual preferred stock and debt.
Moody’s Investors Service placed Dubai Islamic Bank on ratings watch for a possible cut in December because loan quality “remains very weak compared to peers” and the bank hasn’t set aside enough money to cover losses. The lender is seeking to absorb bad loans stemming from a property crash that sent Dubai home prices tumbling more than 65 percent. Tier 1 capital is the core resources needed to cushion against losses.
“The transaction, which was subscribed to by a variety of investors from across Asia, Europe and the Middle East, will allow the bank to shore its capital base,” Deputy Chief Executive Officer Adnan Chilwan said in a statement. HSBC Holdings Plc, Standard Chartered Plc, Emirates NBD Capital, National Bank of Abu Dhabi PJSC and Dubai Islamic Bank itself were joint lead managers of the sale.
The bank, which is taking over mortgage lender Tamweel PJSC, last issued sukuk in May, when it raised $500 million from the sale of five-year securities at a coupon of 4.752 percent. The yield on those notes has since fallen to 3.45 percent today, according to data compiled by Bloomberg.
The average yield on financial sukuk in the six-nation Gulf Cooperation Council tumbled to a record 2.52 percent Jan. 23, according to the HSBC/NASDAQ Dubai GCC Financial Services US Dollar Sukuk Index. The yield was at 2.66 percent yesterday.