Sobha Realty raises $300m with debut sukuk

Dubai-based property developer Sobha Realty has raised $300m from its debut sale of Islamic bonds or sukuk. The pricing of the Islamic issuance, which includes a call feature, the first of its kind for a GCC sub-investment grade benchmark-sized sukuk, marks a significant achievement for Sobha Realty and the entire real estate industry.

The developer’s sukuk drove exceptional investor diversification. The five-year sukuk non-callable for three years launched at a yield of 8.75 per cent, the lower end of initial guidance earlier this week of 875 per cent, after drawing final orders of more than $525m, according to a document from one of the arranging banks that was seen by Reuters.

The issuance also paved the way for debut issuers in 2023, as the first debut corporate issuer from the region in senior unsecured benchmark-sized format this year.

“We are thrilled to have accomplished this remarkable milestone with the successful issuance of our inaugural $300m sukuk,” Ravi Menon, the co-chairman of Sobha Realty said, adding that the issuance showcases the company’s ability to attract diverse investors from around the world.

Sobha’s pioneering approach and ability to tap into new markets have positioned the company as a key player in the real estate sector as it continues to expand its footprint and explore new opportunities with its unwavering pursuit of excellence and focus on quality.

The company is mainly active in Dubai’s real estate market, where it had an 8 per cent market share in the first quarter of the year, according to a presentation on its website.

GCC sukuk issuances

Meanwhile, Sobha’s sukuk issuance demonstrates the growing appetite for Islamic finance instruments in the GCC region. Islamic bond issuance exceeded $800bn for the first time in the second quarter of 2023, according to Fitch Ratings.

Earlier in July, Abu Dhabi Islamic Bank issued a $750m US-dollar-denominated additional tier-one (AT1) perpetual Sukuk. In May, Aldar Properties’ subsidiary Aldar Investment Properties raised $500m from a debut green sukuk. The 10-year Islamic bond was priced with a 4.88 per cent coupon rate.

Fitch said sukuk issuance in core markets reached $49.1bn in Q2 2023, up 10 per cent quarter-on-quarter (QoQ) while bond issuance plunged by 4.8 per cent. Dubai-based property and retail conglomerate Majid Al Futtaim raised $500m through a 10-year dollar-denominated green sukuk, as investor demand and favourable conditions drive issues from the GCC region.

The Saudi Real Estate Refinance Co. also raised SAR3.5bn from the debut dollar-denominated sukuk in May, the sixth tranche under the company’s upsized SAR20bn sukuk programme, guaranteed by Saudi Arabia through the Ministry of Finance.

However, Fitch cautioned that sukuk issuance is expected to slow in Q3 2023 coinciding with summer vacations in many countries, before picking up pace in the last quarter of the year.

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