Good appetite allows tighter pricing
Dubai Islamic Bank (DIB) has issued a $500m five-year sukuk (Islamic bond), in the first GCC bank international issuance since November 2015.
The issuance was 2.4 times oversubscribed, which allowed DIB to tighten pricing from five-year midswaps plus 245 basis points to 230 basis points.
Sixty-two per cent of investors were from the Middle East and North Africa (Mena) region, 20 per cent from Europe and 18 per cent from Asia.
We are delighted with the success of the deal especially in light of recent market conditions, says Adnan Chilwan, CEO of the bank. DIB is a frequent issuer in the international debt capital markets and, therefore, we view it as our responsibility to tap the markets at an opportune time with the right offering to not only achieve our own funding objectives but also to help reopen the markets for our peer banks in the UAE and the wider GCC.
DIB is rated Baa1 stable by US-based Moodys Investor Service and A stable by UK-based Fitch Ratings.
Banks have held back from tapping international debt markets since late 2015 due to a fall in investor appetite and a rise in pricing. This was caused by lower liquidity in the banking system, where banks are important bond investors, and ratings downgrades of GCC banks and sovereign issuers on the back of lower oil prices.
But banks will need to return to markets at some point for funding.
The pricing is in line with the last quarter of 2015, but is significantly higher than what DIB secured for a $750m five-year sukuk in May, a spread of 125 basis points over midswaps.
Commercial Bank of Dubai, which has the same rating from Moodys, saw a five-year bond price at 232 basis points over midswaps in November 2015. International Bank of Qatar, rated higher by Moodys at A2, priced a five-year bond at 200 basis points over midswaps the same month.
Concerns that tightened liquidity was hitting bank issuers began in September 2015, when Abu Dhabi Commercial Bank pulled a six-year bond that was initially priced at 155 basis points over midswaps.
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