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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



 

Qatar is returning to the international Islamic bond market this week after an absence of nearly a decade, and initial price talk indicates it is leaving enough on the table to entice a huge investor pool – and possibly print the Gulf’s largest dollar-denominated sukuk this year.

 

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.

 

This equates to a profit rate of about 2.22 percent for the long five-year tranche maturing in January 2018 and about 3.4 percent for the long 10-year paper maturing in January 2023.

 

The initial pricing guidance is wider than some in the market had expected, given heavy global demand for high-grade Gulf paper and strong demand for sukuk among idle Islamic investment funds.

 

Qatar may be aiming to maximise orders for the sukuk, which would allow it to make large allocations to global investors and particularly Islamic investors in southeast Asia. Allocations for big Gulf deals last month, including Bahrain’s 10-year, $1.5 billion sovereign bond, showed investors from outside the Gulf were increasingly muscling in on new issues.

 

“Indicative pricing is a couple of basis points cheap to the existing conventional curve,” said Doug Bitcon, head of fixed income funds and portfolios at Rasmala Investment Bank in Dubai.

 

“Bearing in mind that sukuk typically trade inside conventional paper as well as expected demand from regional banks, the indicative pricing is attractive.”

 

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Qatar, the world’s top liquefied natural gas exporter, normally doesn’t issue small; it printed a $5 billion, multi-tranche conventional bond last November, and prior to that a $7 billion bond in 2009. The sovereign has not issued a sukuk since 2003, when it priced $700 million of seven-year paper.

 



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