Yes, the originators will heap on the plaudits of the
importance and impact of the issuances - from a domestic, regional and global
market perspective - but in reality once the dust settles, the attention easily
moves on to the next such origination offered on the international financial
markets.
Despite the fact that QIB stresses that this issue could
pave the way for future issuances, it settled for a single transaction as
opposed to a program of which this $750 million sukuk issued on its behalf
through a special purpose vehicle (SPV), QIB Sukuk Funding Limited, would have
represented the first tranche.
While sovereign Qatar has issued a sole $700 million Sukuk
Al-Ijarah in 2003, of which part of the proceeds went to finance the
construction of the athletes' village for the Asian Games in 2006, corporate
issuances have lagged in the emirate compared with markets such as Saudi
Arabia, the UAE, Bahrain and Malaysia, which have a very active sukuk
origination market. The Qatar Central Bank also has an active conventional bond
program. This leaves Malaysia and Bahrain as the two most dedicated and
supportive issuers of both domestic and international sukuk in the world. With
due respect to both Kuala Lumpur and Manama, this is hardly the stuff a
functioning and sustainable global sukuk market can be based on.
The QIB issuance, which was jointly lead arranged by
QInvest, HSBC and Credit Suisse, is the first international issuance by QIB and
the first sukuk by a Qatari financial institution. The three institutions are
also the bookrunners, while the Islamic Development Bank and National Bank of
Abu Dhabi were the co-managers.
Global sukuk issuance have been meager in 2010 with
sovereign Malaysia with its $1.25 billion Malaysia Global Trust Certificates
and the $450 million Sukuk Al-Ijara issued by Dar Al-Arkan Real Estate
Development Company (DAAR) being the notable exceptions. Saudi Electricity
Company (SEC) is also finalizing its debut international issuance, having
received the go-ahead from the Capital Markets Authority in June 2010.
Following a series of road shows in key markets in Asia, the
Middle East and Europe, QIB went ahead with the offering. The demand was very
robust with the order book closing at $6 billion, which means the issuance was
oversubscribed nearly 8 times. This, says QIB, is the largest order book for a
GCC financial institution for a 5-year offering. The “A” rating assigned by the
international rating agency, Fitch Ratings Services, also boosted appetite for
the issuance.
The huge appetite for the issuance is reflected in the tight
pricing. The transaction was able to price at a final spread of MS+237.5 basis
points (bps), 25 bps through initial price whispers, and at the tight end of
guidance. While QIB was targeting to price the deal on par with Central Bank of
Qatar (CBQ) bonds, the strength of the order book allowed the bank to price its
2015 sukuk around 10 bps tighter than CBQ's 2014 bond. Not surprisingly, the sukuk
has a profit rate of 3.856 percent per annum which will be paid through a fixed
coupon. This fixed rate coupon, says QIB, is the lowest ever hard currency
coupon from a MENA financial institution to date.
The sukuk which has a tenor of 5 years matures on Oct. 7,
2015, and is listed on the London Stock Exchange and governed by English law,
by far the leading legal jurisdiction for international sukuk issuances,
although QIB stresses that the sukuk assets are governed by Qatari law.
An elated Sheikh Jassim Bin Hamad Bin Jassem Al-Thani,
chairman of QIB, could not be more to the point: "Qatar Islamic Bank
priced its highly successful debut international sukuk on Sept. 30 representing
the first international sukuk transaction from a Qatari financial institution.
We are very pleased at the excellent market reception to Qatar Islamic Bank's
pioneering sukuk issue. The highly successful offering demonstrates the
confidence which international investors place in the State of Qatar and its
Islamic banking market and confirms the access to funding which our financial
institutions and corporates enjoy from the Islamic capital markets. Investors'
strong interest resulted in the order book reaching to $6 billion, around 8 times
of the offer amount. This is a highly successful result that further confirms
the credibility of QIB and the investors' confidence in the promising outlook
for QIB."
According to QIB, this debut issuance will be the platform
for future forays into the Islamic capital markets especially through more
sukuk issuance, and will further strengthen QIB's balance sheet and its ability
to meet its commitment to national economic development.
In terms of the geographic distribution, Middle East
investors subscribed half of the issuance, followed by UK and Asia investors
with 16 percent each, US offshore investors with 7 percent uptake, European
investors with 6 per cent uptake and the others with 5 per cent uptake of the
subscription. Banks were the biggest subscriber to the issuance with an uptake
of 40 percent, followed by fund managers with 33 percent, sovereign wealth
funds and international agencies with 17 percent and private banks with 10.0
percent.
QIB, in fact, itself subscribed QR1.25 billion in a recent
domestic Sukuk Al-Ijara issued by the Qatar Central Bank on behalf of the
government of Qatar. The 8-year sukuk matures in June 2018. The security and
returns of the sukuk investment are enhanced by the Qatari government's
guarantee to repurchase the shares from investors at maturity. According to
Salah Jaidah, QIB CEO, the issuance of the Sukuk Al-Ijara in domestic currency
"aims to diversify the financial industry, consolidating local sukuk and
supports the dynamic participation of Islamic financial institutions in funding
the governmental sector. The investment initiative aims to also attract excess
liquidity within the financial industry, and offers well established local
banks the opportunity to invest in a high-return investment mechanism."
QIB recently reported encouraging interim results for 2010
with net profit increasing to a record 601 million Qatari riyals and net
financing income reaching QR906 million compared with QR845 million for the
same period in 2009. Similarly, total equity reached QR8.4 billion in the first
half of 2010, an increase of 12 percent compared to same period in 2009, and
total assets topped QR45.2 billion, a growth of 27 percent on the same period
in 2009.
While banks in the West are reluctant to increase financing
especially of small businesses, QIB is financing portfolio, which is 95 percent
domestic, increased from QR19.7 billion in first half of 2009 to QR28.6 billion
for the same period this year. This included a QR2 billion Murabaha financing
facility for the local Barwa Real Estate. Similarly, customer deposits grew by
26 percent from QR20.2 billion to QR25.4 billion for the same period
respectively. This says QIB reflects customers' increasing confidence in the
bank's performance.
Not that QIB was not affected by the impact of the global
financial crisis. However the impact was more on the real economy which
affected the bank's customers. Jaidah is confident of the bank's successful
strategy in dealing with provisioning of bad loans and reducing the
non-performing loans' ratio to 1.4 percent. During the first half of 2010 QIB
also consolidated its domestic activities and plans to increase its branch
network in Qatar from 26 to 35 by 2012.
Abroad, QIB signed a MoU with the leading French banking
group Banque Populaire Des Caisses d'Epargne (BPCE) to promote cooperation
between the two banks for launching Shariah-compliant products to the French
SME and retail banking sectors. The two banks will also cooperate on the
possibility of arranging sukuk origination out of France for French corporate
and other issuers.