10 Biggest GCC Sukuks In 2012
As more regional and international companies turn to Islamic bonds to raise capital, Gulf Business lists the biggest Sukuks issued so far this year.
The Sukuk industry has had an up-and-down journey in the GCC over the last few years but once again it is showing strong growth in 2012, with issuance in recent months particularly strong.
With the on-going sovereign debt crisis plaguing Europe it is unsurprising that Gulf-based corporates have looked elsewhere and Middle Eastern Islamic money, especially in the GCC, is viewed as a relative safe house in comparison.
As a result the region is going through its most accelerated period of Islamic bond activity in recent memory with banks as well as sovereign entities, including the Qatari and Dubai governments, making the most of the current growth environment.
The top ten GCC Sukuk issuances:
1. Government of Qatar – $4 billion
Qatar’s $4 billion, two-tranche Sukuk – priced at $2 billion each – attracted a massive order book of over $24 billion. The five and 10-year Sukuks were the largest dollar-denominated Islamic bonds ever issued and the Qatar government’s first in nine years. The Gulf state took advantage of heavy interest in high-grade Gulf debt as buyers looked for safe havens away from the global financial crisis and sold the debt with a yield of 2.099 per cent on the five-year tranche and 3.241 per cent on the 10-year. Qatar also benefited from region-specific factors when pricing the Islamic bond – high oil prices, comfortable budget surpluses and solid economic growth.
Akber Khan, director for asset management at Al Rayan Investment in Doha, said: “The Qatari sovereign has a history of being a savvy issuer and appears to be taking advantage of the extraordinary spread compression we’ve seen in GCC Sukuk over the last six months.”
2. Saudi Arabia’s General Authority of Civil Aviation – $3.99 billion
KSA’s General Authority of Civil Aviation raised $4 billion from the sale of Sukuk in January this year, the first government guaranteed Islamic bond in Saudi Arabia’s history. Raising SAR15 billion for GACA, the Sukuk achieved a profit rate of 2.5 per cent and was 3.5 times over-subscribed. There was strong demand from banks, sovereign funds, insurance companies and corporates, demonstrating any future issuances won’t be reliant on any one sector.
Walid Khoury, CEO of HSBC Saudi Arabia – who was the sole book runner for the issuance – said, “With no ‘risk free’ local benchmark, it wasn’t possible to use a local reference point, so instead issuers used a theoretical point. In effect this issuance therefore establishes a local pricing point for future Sukuk.” GACA plans to use the raised funds to build a SAR27 billion airport in Jeddah.
3. Saudi Electricity Company – $1.75 billion
Saudi Electricity Company (SEC) issued a $1.75 billion, two-tranche Sukuk in April this year on five and ten-year maturities. The five-year Islamic bond was priced at $500 million while the larger 10-year Sukuk was priced at $1.25 billion. The dual-tranche Sukuk attracted global interest with orders from over 440 investors in excess of $17.5 billion. The deal was the largest international debt capital markets issuance from the Kingdom and the first international Sukuk issuance by SEC.
Mr. Ali Al Barrak, CEO of SEC, said at the time: “The Sukuk issue is important to us for strengthening our funding mix, accessing longer-tenure financing, broadening our investor base and helping us become more in line with our global peers while supporting SEC’s capital expenditure requirements. We are very pleased with the results of our Sukuk issuance and feel that the large order book is a positive reflection of the market’s confidence in both Saudi Arabia and SEC.”
4. Government of Dubai – $1.25 billion
Dubai’s first Sukuk since 2009, the government issued a $1.25 billion, dual-tranche Islamic bond in May. A five-year tranche priced at $600 million launched at 4.9 per cent while the 10-year tranche pried at $650 million was at 6.45 per cent. Both tranches were listed on the Dubai Financial Market with the order books totalling $4 billion at the time of close. The funds raised will be used to refinance debt and cover the budget deficit. Dubai’s government benefited from a rise in bond prices in the region in recent months as Europe and America’s debt problems worsened.
5. Islamic Development Bank – $800 million
Saudi-based Islamic Development Bank issued an $800 million five-year Sukuk in June, its first public debt issuance in over a year. The size of the Islamic bond was increased from $750 at launch, indicating the strong level of demand for the sale. The issue carried a profit rate of 1.357 per cent and was priced at a spread of 40 basis points over midswaps. Proceeds from the issue will be used to fund expansion in IDB’s operations.
Georges Elhedery, head of global markets MENA, HSBC, explained to Gulf Business why Saudi banks were having such a busy year with Sukuk listing. “The Kingdom is central to the regional Sukuk market and has been a prolific issuer for many years and the trend is only pointing upwards. When we look at the numbers, historically we’ve seen four or five issuances per year from Saudi, but last year we saw 10. And, what these figures don’t tell you is the size of the Sukuk issued by Saudi entities; the size is trending up. Buyers are incredibly receptive to issuances from strong local names and, given the pace of industrial and economic development, the Sukuk markets will remain a core funding tool.”