Register for our free newsletter

Latest News

First Gulf company to issue hybrid sukuk

10-TRE165-Trends GCC Stock.pdf - Adobe Reader

The instrument is expected to appeal mainly to international investors familiar with the structure, rather than investors within the Gulf.

November 7, 2012 11:43 by

Abu Dhabi Islamic Bank is set to become the first Gulf Arab company to issue a hybrid Islamic bond this week, but investors are likely to demand a big premium for the rare structure.

The bank is expected to raise at least $500 million to shore up its core capital, to comply with tighter Basel III global standards for Tier 1 capital which will be introduced in the United Arab Emirates in coming years.

In recent years, Gulf lenders including Commercial Bank of Qatar, Burgan Bank and Saudi Hollandi Bank have sold instruments to raise Tier 2 capital.

But ADIB’s Tier 1 sukuk structure is a different animal: it does not have a maturity date – hence it is “perpetual” – and the principal is repaid at the discretion of the issuer.

If ADIB’s issue is successful, it could pave the way for other banks in the region to follow suit, although the jurisdiction in which the bank is located will be important.

One banker said he believed that within the Gulf, only banks from Abu Dhabi or Qatar could feasibly get such a deal done, because governments there have directly supported local banks by injecting capital through various means. This history of support would make investors more comfortable.

The ADIB sukuk is callable at year six, according to an investor presentation seen by Reuters, and on every periodic distribution date after that. It will carry a fixed profit rate of six-year midswaps over the initial margin.

Investors agree that ADIB, rated A+, will have to pay much higher yields than it would for a fixed-term, plain vanilla sukuk. The instrument is expected to appeal mainly to international investors familiar with the structure, rather than investors within the Gulf.

“Much will depend on how is it perceived in terms of the structure. This is certainly nothing to do with prevailing benchmark tenors and corresponding rates,” said a regional investor, requesting anonymity.

“For a perpetuity, my bosses will not allow me to splurge the bank’s money at 2 or 3 percent.”

The investor added that pricing in a range of 6.5 percent to 7 percent, however, would draw interest among potential Gulf buyers.

“The timing isn’t great as most banks would be almost full on annual budgets,” he said, referring to the fact that banks will soon close books at the end of the year. “Anything below 6 percent, I’m off it.”


As with other recent bank capital offerings from emerging markets lenders, especially perpetuals from Banco do Brasil , VTB and Gazprombank, the Asian private bank bid is expected to be key in determining ADIB’s success.

Private banks in Malaysia, which are familiar with sukuk, are expected to play a big part.

“Being the first of its kind from the Middle East, there are no benchmarks for where a deal like this prices. If it offers at least 6 percent, it should fly out of the door,” the banker said.

Pages: 1 2


Leave a Comment