Sharjah Islamic Bank raises $500 million sukuk, orders hit $1.3 billion

Summary

• Sharjah Islamic Bank issued $500 million in five-year unsecured sukuk at a 5.850% yield.
• Investor orders reached $1.3 billion, covering the offering 2.6 times over.
• Strong demand signals appetite for Gulf Islamic bank debt despite regional tensions.

The latest

Sharjah Islamic Bank priced $500 million of five-year unsecured sukuk at a yield of 5.850%, a spread of 105 basis points over comparable US Treasuries, according to Argaam. Regional and global institutional investors placed $1.3 billion in orders, 2.6 times the deal size. S&P Global assigned the issuance an A- rating.

Details

• The structure: The sukuk were issued through SIB Sukuk Company III Limited, a dedicated issuing vehicle of Sharjah Islamic Bank, as unsecured paper. The instruments carry a five-year tenor and mature in September 2031, placing repayment outside the current rate cycle.
• The pricing: Investors were offered a 5.850% yield, set at 105 basis points above five-year US Treasury notes. That spread is the premium investors demanded to hold the bank's paper rather than US government debt of identical maturity, and it anchors the bank's cost of funding for the next five years.
• The order book: Demand reached $1.3 billion against a $500 million offering, an oversubscription of roughly 2.6 times. Argaam reported that the orders came from institutional investors based both in the region and internationally, rather than from retail buyers.
• The rating: Standard & Poor's assigned the issuance an A- rating, placing it in investment grade territory and within reach of the pricing levels available to higher-rated Gulf issuers. A- sits three notches above the investment-grade threshold.
• The listings: The sukuk were listed on two exchanges: Nasdaq Dubai and Euronext Dublin. The dual listing widens the pool of funds able to hold the paper, since some European mandates require a European venue, while Nasdaq Dubai keeps the instrument accessible to Gulf-based institutions.
• The issuer: Sharjah Islamic Bank is a Sharia-compliant lender based in the emirate of Sharjah in the United Arab Emirates. The bank did not disclose how the proceeds will be deployed, nor did it name the banks that arranged the transaction.
• The instrument: Sukuk are Sharia-compliant fixed-income securities that pay returns from underlying assets rather than conventional interest, making them the primary tool through which Gulf Islamic banks access international debt markets.

Background

Gulf issuers have leaned heavily on dollar sukuk to raise medium-term funding from international investors, with Dubai and Dublin the two venues most commonly used for dual listings that satisfy both Gulf and European investment mandates.

Between the lines

The 2.6 times oversubscription and the 105 basis point spread point in the same direction: investors did not demand an elevated premium to lend to a Gulf Islamic bank for five years. The A- rating and the dual Dubai-Dublin listing both widen the buyer base, and the size of the book suggests the bank could have priced tighter or raised more had it chosen to.

What's next

Watch where the sukuk trade relative to the 105 basis point issue spread in secondary markets, and whether other Gulf Islamic lenders follow with dollar issuance at comparable or tighter pricing.

Source: Sharjah Islamic Bank