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First Gulf company to issue hybrid sukuk

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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



“What else can you buy in the region at that level? The challenge is that the deal is unrated, which will probably put off some accounts, but I think it will get good sponsorship from private banks as the yield will be very attractive.”

ADIB last tapped debt markets for a $500 million, five-year sukuk in November last year; it carried a profit rate of 3.78 percent. The sukuk was bid at 105.2 cents on the dollar on Tuesday, yielding 2.4 percent.

Yields will have to reflect the dividends which shareholders can typically expect. ADIB shares ended flat on Tuesday, but have gained 4.8 percent year-to-date.

“The dividend yield on ADIB equity is 7.4 percent. So this sukuk should ideally be priced slightly below this level,” said a regional treasury source.

DEBT VS EQUITY

Several features of the ADIB sukuk qualify it more as an equity instrument than a plain vanilla sukuk, which is usually classified as senior debt.

The upcoming perpetual sukuk will be classed as deeply subordinated, with proceeds used to strengthen ADIB’s core capital rather than booked as a liability on its balance sheet.

“Common equity is generally perpetual, unlike bonds and sukuk, which typically have a defined maturity. ADIB’s Tier 1 also features a discretionary profit payment, which more closely resembles an equity dividend than a bond’s coupon payment,” said Nick Stadtmiller, head of fixed income research at Emirates NBD.

“The economics of ADIB’s Tier 1 notes have more equity-like features to allow them to book the notes as capital on their balance sheet, rather than as a liability.”

ADIB shareholders approved the capital-boosting measures at a meeting last month. The bank had a Tier 1 capital ratio of 13.45 percent at the end of June 2012, and said in its second-quarter results that it aimed to raise this to above 15 percent in the near term.

ADIB, the largest sharia-compliant lender by market value in Abu Dhabi, is to conclude investor meetings on Wednesday in Zurich, after kicking off meetings last week in the Middle East and Asia.

The bank has mandated itself, HSBC Holdings, Morgan Stanley Inc, National Bank of Abu Dhabi and Standard Chartered Plc to arrange the deal.



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