x Abu Dhabi, UAEThursday 18 January 2018

ADIB gets strong investor response

Abu Dhabi Islamic Bank receives a robust response to its US$750 million sukuk issuance.

Abu Dhabi Islamic Bank (ADIB) has received robust response to its US$750 million (Dh2.75 billion) sukuk issuance, its first such offering since 2006, showing global investors' increasing desire for Middle East bonds.

The five-year sukuk, which was 4.8 times oversubscribed, has received such demand it will only yield slightly more than a bond recently issued by Waha Capital, which is backed by the Abu Dhabi Government.

Tirad Mahmoud, the chief executive of ADIB, said: "We have successfully diversified and extended the tenor of our funding base and this will enable ADIB to maintain its already successful customer-centric growth strategy."

Mr Mahmoud added the total order book was $3.6bn, leaving the sukuk with an expected spread of 2.25 per cent over mid swaps. Bond yields are inversely correlated with price, meaning a high level of demand reduces the yield received by an investor.

This also means a low difference between a bond's yield and another benchmark, known as the "spread", is a sign of high investor interest.

Khalid Howladar, the senior credit officer at Moody's Middle East, said the low spread was a result of sluggish economic growth in Europe and America.

"If you look at most of the recent issuances, they've all been over-subscribed," Mr Howladar said. "If you think about it globally, yields are 2 to 3 per cent in Europe.

"If you're comfortable with Abu Dhabi risk or Qatar risk - and given the price of oil and gas, many investors are probably very comfortable - appetite for Middle Eastern credit is very strong from emerging markets.

"It shows the market for Middle Eastern bonds and credit is still climbing, because looking at corporates, only in May [government-backed] Mubadala borrowed at 250 basis points above mid-range spread."

Jaap Meijer, a financial analyst at Alembic HC Securities, said the issuance would help improve liquidity for ADIB, which he said was among the "worst prepared" to deal with the coming Basel III regulations of banks in the UAE.