Islamic Development Bank’s sukuk hints at Gulf recovery

HSBC has closed a US$850mn sukuk for the Islamic Development Bank (IDB), signally a potential revival of the debt markets in the Gulf region.

Mohammed Dawood, director of debt capital markets, HSBC Amanah, sees that the deal demonstrates the returning investor appetite for sukuks.

“IDB is a transaction with several notable factors: First, IDB has successfully placed its sukuk during Ramadan, traditionally a period when the Middle East markets are very quiet,” he remarks.

“Second, there was a strategic objective to broaden the investor base for this rare borrower, which is shown vividly by the global distribution profile, included a large portion from investors that have not invested in paper from this issuer before. All of which provides further evidence of the re-opening of the sukuk market in 2009, and the strong international interest that sukuk are receiving from investors all over the world.”

The sukuk has a tenor of five years, and is priced at 77 basis points over US Treasuries. The order book for the sukuk is US$2bn, 2.4 times oversubscribed.

HSBC also closed a US$1.5bn bond issue for the Abu Dhabi National Energy Company. This consisted of two tranches, a five-year tranche paying 250bp over US Treasuries, and a 10-year tranche, paying 287.5bp over US Treasuries.

The order book was for US$12bn, eight times oversubscribed.

The IDB used to provide shari’ah-compliant trade finance products within the Gulf, until it grouped all these activities into a separate autonomous entity, the International Islamic Trade Finance Corporation (ITFC). The ITFC has been actively trying to revive trade finance markets in the Gulf region.