The government of Dubai, acting through the Department for Civil Aviation, last Friday sold a $1bn five year sukuk — or Islamic leasing bond — the largest Islamic-compliant bond to date.
The bond forms part of a $4.1bn financing package for the development of Dubai's international airport, and in particular for the construction of a third terminal.
Lead managers Citigroup, Dubai Islamic Bank and HSBC were able to price the bond at par with a coupon of 45bp over Libor.
“The sukuk is secured on airport assets, in particular terminal one and the surrounding area, excluding any shops selling alcohol or tobacco products,” said Chris Hewitt, head of emerging market syndicate at Citigroup in London.
The bond was unrated, limiting the size of investor interest outside the Middle East. The UAE is rated A2, but none of the individual emirates that comprise it have ratings.
“While attracting international participation was a priority for the borrower, this was not to be achieved at the cost of [reducing] pricing,” said Andrew Dell, managing director of HSBC's debt finance syndicate in London. “Nearly one quarter, or 23%, of the book was made up of international orders.”
As an unrated issuer, there were few direct comparables, but bankers looked at Qatar's 2010s that have an average life of 2008, which were at about 30bp over Libor, as well as Bahrain's 2009 FRN sukuk, which was at 40bp-42bp and its 2008 fixed rate bond at around the mid-30bps on a Libor basis.
Investors in the Middle East bought 73%, Europe 16% and Asia 11%. Banks bought 80%, government agencies 9%, insurance and pension funds 7% and others 4%. There were 32 orders in a book of $1.25bn.
Pakistan is the next issuer in line to sell an Islamic-compliant bond. Last month it selected Citigroup and HSBC to lead manage its issue, expected in the second half of November. It is expected to be floating rate, have a five year tenor and be worth $300m-$500m.