Lessons learnt from Sukuk sales (See IFN)

GLOBAL: With the Sukuk market expected to take a breather in tandem with Ramadan, which this year also coincides with the summer vacation period, perhaps it would be useful to look back on what this year’s record level of issuances has shown us so far.

The first point to note is that issuers shouldn’t be afraid to go big in terms of issuance size, as the financial system is flush with liquidity and investors are ripe for the picking. This was clearly seen from Qatar’s US$4 billion sovereign Sukuk sale on the 11th July; which received US$24 billion-worth of subscriptions.

In further testament of robust demand for Sukuk, Emaar Properties, which sold a US$500 million Sukuk just a day after Qatar’s issuance, attracted US$4.65 billion-worth of orders for its offering.

In addition, as noted by Nick Stadtmiller, the head of fixed-income research at Emirates NBD, in a Bloomberg report, the maturity and repayments of large Sukuk such as Jebel Ali Free Zone’s AED7.5 billion (US$2.04 billion) facility, DIFC Investments’ US$1.25 billion obligation and Dar al-Arkan Real Estate Company’s US$1 billion Sukuk have resulted in excess cash for Sukukholders, who are now looking to redeploy their funds into the Sukuk market.

Another notable point is that conventional investors, especially those from Europe, are increasingly buying into Shariah compliant debt, signaling that Sukuk issuers are now able to tap into a more diversified investor base.

Emaar, which held investor meetings for its Sukuk only in London, saw 38% of its offering taken up by European investors; while Emirates Islamic Bank, which priced a US$500 million Sukuk on the 4th July, attracting a US$5 billion orderbook, saw 28% of its papers bought by European investors; 17% of which were from the UK.

A final lesson to be learnt from this year’s Sukuk season is that issuers should stick to the basics, as demonstrated by Tamweel’s aborted US$235 million asset-backed securitization; a transaction that would have been a rare showing of a securitization in the Gulf. The Shariah compliant mortgage firm announced a postponement of the deal, expected in July 2012, following market feedback.

In comparison, the firm successfully sold a US$300 million plain vanilla Sukuk just at the start of 2012; proving that investors are keen on the Tamweel credit story; but not of offerings that are too sophisticated.

See: http://redmoney.newsweaver.co.uk/s2nijxqxi4fh38rwoni3wx?email=true&a=6&p=26047074&t=21700754