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Why Qatar’s first sovereign sukuk in nine years is attracting attention

qatar sukuk

The Gulf Arab state plans to issue a two-tranche sukuk, with early price talk in the area of 135 basis points over midswaps for the five-year portion and 175 bps over for 10-year paper.

July 10, 2012 4:43 by



 

That means the sukuk’s indicative pricing is now roughly in line with the conventional bond for the five-year tenor and nearly 20 bps wider for the 10-year – implying there may be more room for the 10-year to tighten in subsequent price talk.

 

IJARA STRUCTURE

 

The sukuk will have an ijara structure, a rental or lease arrangement, according to the prospectus. In a common form of ijara, the originator sells assets to a special-purpose vehicle which issues sukuk certificates to obtain funding to pay for the assets.

 

According to a ratings release on Monday from Standard & Poor’s, which has rated the potential sukuk AA, on a par with its rating for the sovereign, the underlying assets will be state-owned buildings and land in Qatar.

 

The Islamic debt market has been resilient during the latest phase of the euro zone crisis and most regional deals so far this year have been in the form of sukuk. Unrated Dubai issued a two-tranche $1.25 billion sukuk in April, following Saudi Electricity Co’s issue.

 

Both those deals were considerably oversubscribed; they carried a 10-year portion which attracted long-term institutional investors while at the same time catering to the regional sweet-spot with a five-year tranche. The Saudi Electric sukuk attracted orders of at least $15 billion, partly because of its rarity as a dollar-denominated, investment-grade issue from that country.

 

Saudi Electric’s 2.665 percent five-year tranche was bid at a yield of 2.40 percent on Tuesday, while the 4.211 percent 10-year portion was yielding just under 3.5 percent, according to Reuters data.

 

Qatar has hired HSBC Holdings, Deutsche Bank , Standard Chartered Plc and local lenders Barwa Bank and QInvest to arrange its deal. (Additional reporting by Regan Doherty in Doha; Editing by Andrew Torchia)



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