x Abu Dhabi, UAEMonday 24 July 2017

ADIB weighs Islamic bond sale

Abu Dhabi Islamic Bank will meet overseas investors ahead of a possible Islamic bond sale.

Abu Dhabi Islamic Bank (ADIB) will meet overseas investors from tomorrow ahead of a possible Islamic bond sale as demand for Sharia-compliant issues from the region builds.

A sale by ADIB could signal a revival in the Islamic bond market after a disappointing third quarter in which issuances in the Gulf fell to US$362 million (Dh1.32 billion).

The bank yesterday posted third-quarter profits of Dh314.5m, a rise of 31 per cent from the same quarter last year. Provisions for bad debts rose 36 per cent to Dh165.6m in the third quarter from the same period a year earlier, ADIB said in a statement to the Abu Dhabi Securities Exchange. Only hours before, it had announced it would conduct a series of "non-equity" meetings in Asia, Europe and the Middle East from tomorrow.

ADIB has hired HSBC, Standard Chartered and Barclays to help sell bonds, two bankers familiar with the proposals told Bloomberg last week.

"There's pent up demand for sukuk," said Ahmad Alanani, the director of fixed income sales and trading for the MENA region at Exotix in Dubai. "There's so much happening in the bond market and a lot of Sharia-compliant investors have kept their money waiting on the sidelines."

The regional sukuk market has largely been left behind in a recent surge in sales of conventional bonds that began last month. The Dubai Government last month raised $1.25bn, with Emaar Properties expected to complete the sale in December of a $500m bond. One of the few bright spots in the Islamic market was Qatar Islamic Bank (QIB) issuing a $750m, five-year Islamic bonds on September 30.

Strengthening investor demand for regional sovereign and quasi-sovereign debt and the higher yields of Gulf bonds to their Asian counterparts should encourage sukuk sales, say analysts.

ADIB is expected to help spearhead a resurgence in the market. The bank would be able to command better pricing for its sale than QIB, Mr Alanani said. He said he expected a yield of 3.6 per cent for a five-year bond.

ADIB has a $5bn sukuk trust certificate programme and would issue bonds in any currency under no particular timetable, according to a prospectus dated July 8 posted by the bank on the London Stock Exchange website.

Global sukuk sales reached $10.3bn in the third quarter, a 31 per cent increase on the second quarter, with Malaysia accounting for almost all of the issues, according to research by NCB Capital. In contrast, it was a largely disappointing quarter in the GCC market, with sales falling from $3.5bn in the second quarter.

Lingering concerns about sukuk structures and risks stemming from potential default-type situations helped account for the sluggish nature of the market, Jarmo Kotilaine, the chief economist at NCB Capital in Saudi Arabia, wrote in a research report.

"The GCC sukuk market that had underperformed in the third quarter is expected to particularly benefit from improved risk perception," he wrote. ADIB's third-quarter profits rose after income from fees and commissions increased.

"While the brunt of the legacy portfolio's cost of credit was absorbed in 2009 we will continue to take prudent measures, including further credit provisions and impairments, in line with the relevant policies and developments," said Tirad Mahmoud, the bank's chief executive.