Dubai’s new $750m 10 year sukuk would probably have received an enthusiastic reception from investors at any point in the year. After all, the emirate has enjoyed a remarkable recovery in fortunes since it fell from grace in 2009. But the timing of its return to the market is doubly welcome for being the first international dollar sukuk — alongside Sime Darby of Malaysia, on the same day — not only of 2013 but since November.
At this point in 2012, after just a few weeks of January, there had already been three international issuers — First Gulf Bank, Emirates Islamic Bank and Tamweel — for a total of $1.3bn. On top of this, Saudi Arabia had also announced its return in style, with the General Association of Civil Aviation issuing a much lauded SR15bn ($4bn) deal.
Issuance figures so far in 2013 are hardly encouraging – particularly for a year that has been widely tipped to outshine the record $144bn seen in 2012. Even setting international deals aside, there has been only $8.25bn of sukuk issuance this month – mainly from Malaysia – compared to almost $19bn by this time last year, according to figures from EuroWeek’s Islamic Finance Information Service.
Investors have been willing to make allowances, along the lines of “sukuk deals take a long time to ramp up”, “2012 was very busy”, “the market is taking a breather”, “there is an Islamic holiday on Thursday”, and so on. But one ought to expect much more energy about the market if Dubai’s and Sime Darby’s deals are deemed a success.
And that is looking likely. The emirate opted for a $750m 10 year deal and targeted a price of 3.875% — inside 4% area secondary levels and much tighter than the $650m 10 year sukuk it issued in May last year, at 6.45%.
Investors also lapped up Sime Darby’s first dual-tranche transaction of its $1.5bn programme, and bankers hope a strong reception will help encourage more Malaysian sukuk supply to follow.
Dubai’s return provides a great reminder not only of how far the borrower has come as a credit in just seven months, but also how buoyant and solid the sukuk asset class has proved in recent times.
What remains to be seen is if the market can follow Dubai’s lead and regain momentum. International investors have been left to wonder for too long where the next deal is coming from. Dubai Electricity & Water Authority is one of the few possibilities approaching on any kind of schedule – and that is chalked simply for some time in the first quarter.
Having held firm for several months, conditions could hardly be better. It is time for issuers to borrow some of Dubai’s fire and seize the opportunity before the world loses interest. If Dubai and Darby can’t get the sukuk market going, nothing will.