DIB Pc1/21 Preferred to Boubyan AT1 Capital

02 June 2016

Global Sukuk Markets Credit and Relative Value Ideas

DIB Pc1/21 Preferred to Boubyan AT1 Capital

Highlights/Updates:

Boubyan Bank (Baa1/Sta;NR;A+/Sta) priced USD250m AT1 sukuk at 6.75% (MS+558.8bps) via an SPV, Boubyan Tier 1 Capital (NR). The first-time sukuk issuance has drawn demand of 5x book size, proceeds of which will be used to boost Basel III Additional Tier 1 capital. 

Sukuk Details:

Sukuk	Boubyan Tier 1 Capital, BUBYAN 6.75% Pc5/21 (Price: 102.92; YTC: 6.064%; T5+485.9bps; Z+491.5bps)
Amount Outstanding	USD250m
ISIN	XS1407089926
Ratings	NA
Key Terms	·    Basel III Additional Tier 1 ·    Sukuk al Mudarabah

Relative Value Commentary

BUBYAN Pc5/21 seems cheap among the USD sukuk perpetual complex on an RV basis (see Figure 1), and appears to provide over 35-50bps absolute yield pickup relative to DIB Pc1/21(NR) (amount O/S: USD1.0bn; YTC: 5.634%; Z+451.3bps) of similar parent rating (Baa1/Sta; NR; A/Sta). However, for a slight duration extension of 0.3 years, same profit rate of 6.75%, and much better liquidity from outstanding issue (DIB Pc 1/21’s USD1bn compared to BUBYAN Pc5/21’s USD250m), we prefer DIB Pc1/21to the newly issued BUBYAN Pc5/21 as we do not see counterbalancing forces in action given limited liquidity in the market and investor appetites.