PC: Gulf News
Initial Price Guidance Set at 5.750% for Six-Year Sukuk
DIB, the largest Islamic lender in the United Arab Emirates, yesterday launched the bookbuilding process for a US$500m additional tier 1 (AT1) sukuk. The issuance of the AT1 sukuk will have a non-callable period of six years, meaning it can’t be redeemed at the issuer’s request before at least six years from issuance, said a lead bank document on the deal.
The initial price guidance for the sukuk has been set at 5.750%, with final pricing expected later in the day. This also gives the kind of returns investors can expect to receive, though this might change based on demand during the book-building process.
Joint Lead Managers and Bookrunners
This huge sukuk issuance is being handled by a chain of several financial institutions. Al Rajhi Capital, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank or FAB, HSBC, Sharjah Islamic Bank, and Standard Chartered Bank are the named joint lead managers and joint bookrunners for this issue. These banks would be handling how the deal will be taken through in receiving bids from investors, finalising pricing, and distributing them the sukuk.
Such recognition by the international brands, such as HSBC and Standard Chartered Bank, indicates vast interest on the part of the international markets alongside regional interest from the prominent Gulf-based institutions, such as Emirates NBD and FAB.
AT1 Sukuk Structure
AT1 sukuk is a hybrid financial product, containing the characteristics of debt as well as equity. Sukuk are typically perpetual, though issuers can redeem or “call” the sukuk after six years. Investors into AT1 instruments typically take on higher risk as the loss-absorbing features that are frequently embedded in these kinds of bonds can often translate to a conversion to equity or write-down during stress episodes for the issuing bank. This means that the yields of AT1 sukuk tend to be relatively higher to offset this risk.
This structure of the AT1 follows the precept of Shariah law in Islamic finance products. It follows that this would mean that instead of interest-bearing instruments, it is structured from profit-sharing or any other type of income-generating activity that is in accord with Islamic law.
Market Context
This latest sukuk issuance by Dubai Islamic Bank, therefore, is not a bad time considering the global and regional debt markets have seen increased levels of activity lately, with institutions looking to raise capital and bolster their balance sheets. Islamic finance is an area that has been relatively fast-growing in comparison to its conventional counterpart, with the issued volumes of sukuk remaining one of the primary channels for Islamic banks and corporations to raise finance under Shariah.
The issue of the AT1 sukuk will drive DIB’s capital base enhancement efforts while offering an attractive investment opportunity to a broad cross-section of global and regional investors. The issue will receive significant institutional investors’ demand looking to tap into the Islamic finance market, given the presence of major banks as joint lead managers.
Therefore, the DIB’s sale of sukuk worth 500 million would clearly indicate the non-diminishing vigour in the Islamic finance industry and an offensive strategy to strengthen the capital base for the bank. Being an Islamic lender with a huge market share in the UAE, the DIB’s sukuk issuance is likely to gain some attention from investors who are looking for high-yielding return prospects in the region. The final price that will be announced soon will be clear enough as a signal in the market about the demand for this new financial product.
