DIFC Investments secures competitively priced sukuk

06 November 2014

First issuance for company since 2007

DIFC Investments (DIFCI), which owns properties in the Dubai International Financial Centre, has taken advantage of declining borrowing costs in the region to raise a $700m 10-year sukuk (Islamic bond).

The orderbook for the facility was opened on 3 November and due to investor interest in London and Asian markets, the book closed at about $3bn, which means an oversubscription of about 4.3 times.

Pricing on the deal started at about 200 basis points at US mid-swaps on the morning of 3 November, but was priced at 185 basis points upon the closing of the order book.

The issuance has a profit rate of 4.3 per cent.

The pricing is only marginally more than that seen on the $700m sukuk issued by the Investment Corporation of Dubai (ICD) in May.

“That is quite competitively priced,” says Mohieddine Kronfol, chief investment officer, global sukuk and Middle East and North Africa (Mena) fixed income at the US’ Franklin Templeton Investments. “Clearly, the market has taken a view that this is a de-risked DIFC, with a more simplified business model. It is an investment grade issue when there’s never enough investment grade issues. I would say DIFCI was able to price a successful transaction.”

It is also the first US dollar-denominated benchmark issuance by a regional corporate since July. DIFCI last tapped the debt markets in 2007.

The sukuk is to be used to repay existing syndicated bank debt and to fund the expansion of Dubai’s financial centre.

The original bank debt was not due for repayment until June 2017, but with favourable market conditions, DIFCI has been able to secure cheaper financing.

Just ahead of the issuance, DIFCI was given a BBB- credit rating by US ratings agency Standard & Poor’s (S&P). DIFCI then conducted a global marketing campaign, meeting over 50 fixed-income investors.

The use of sukuk as a funding tool is becoming more commonplace in Dubai and the wider Middle East region.

“[Sukuk] has become very mainstream,” says Kronfol.

“The investor base is fully familiar and has become comfortable with investing in Islamic bonds. You can see this in the pricing of sukuk transactions. In the GCC, you will find they are typically priced cheaper, from an issuers’ perspective, than a conventional bond.”

Dubai Islamic Bank, Emirates NBD Capital, Noor Bank and Standard Chartered Bank were joint lead managers on the issuance.

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