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Business Home > Archive
SIB launched sukuk at the right time

Ali Wahab / 4 June 2011

SHARJAH Sharjah Islamic Bank (SIB) last week closed its second sukuk (Islamic bonds) worth $400 million. The sukuk due in 2016 was closed at a pricing of five-year US dollar mid-swap + 2.70 per cent translating into an annual profit rate of 4.715 per cent.

The issue was in massive demand with orders of $3.62 billion or 9.03x. With roadshows taking place in Abu Dhabi, Dubai, Singapore, Kuala Lumpur, Hong Kong and London, we saw enormous interest from institutional investors. Investors belonging to sovereign wealth funds, multilateral financial institutions, pension funds, fixed income funds, investment banks, hedge funds etc listened to the story SIB had to tell and then showed their interest in being a sukuk holder.  In the end the number of orders received was more than 200. Allocating was a tough task where a delicate balance had to be struck between regional and international investors.

The process of launching this sukuk was a unique experience.

SIB’s management relentlessly pursued the issuance by preparing the necessary groundwork for tapping the global debt markets. With 2010 financial results showing a 2.4 per cent growth in net profitability compared to 2009, the management was confident with the prospects of similar performance for 2011. SIB has been rated for more than 5 years by S&P as BBB. It was decided to reinforce the rating with another rating from Fitch Ratings. The rating meetings were completed by early March. SIB received the necessary thrust in its efforts by receiving an upgrade from S&P to BBB+. Fitch reiterated the same with a BBB+ rating. It seemed that the decision to go ahead with the sukuk had gone off to a necessary good start.

Structuring the sukuk was a critical task where SIB appointed a leading Shariah advisory firm to work with the legal teams to develop a viable structure that takes care of SIB’s requirements. The sukuk structure used was based on the principles of Wakala and with underlying assets being non-real estate Ijarah.

With all the ground work done, SIB announced the transaction in the second week of May with HSBC and Standard Chartered to lead as joint bookrunners. As the investor interest began to build up, a price whisper of five-year mid swap + 3 per cent was released. We saw the order book begin to build up. By the time a price guidance range was to be given, the bank’s management wanted the margin to be reduced to a reasonable level which keeps the investor interest alive.  As a tighter price range was given, we were expecting a possible reduction in the order book. On the other hand, what we saw was the exact opposite. With a tighter margin of nearly 0.30 per cent, the order book swelled to $3.63 billion. With things going our way, we saw the swap rates fall another 4 bps, allowing us to close the transaction as mid swap rate of 2.015 per cent + a margin of 2.70 per cent.

The lessons learnt from the transaction reinforce a lot of confidence in the regional economies especially the UAE. In all the decision to raise the sukuk was an appropriate one for SIB. The timing could not have been any better and the risk appreciation by investors of SIB was a major boost for the bank.

·         The writer is an investment banker with Sharjah Islamic Bank


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