Majid Al Futtaim Holding, the owner the franchise rights to Carrefour and the builder of Dubai's ski slope, is preparing to sell Islamic bonds to investors.
Majid Al Futtaim latest to join rush to sell Islamic bonds
Majid Al Futtaim (MAF) Holding is preparing to sell Islamic bonds as increasing numbers of companies seek to bypass frozen western credit markets and raise funds through sukuk sales.
The retail and hospitality giant, which operates Dubai's Mall of the Emirates, is laying the groundwork for a sukuk sale worth about US$500 million (Dh1.8 billion).
The company's overall $1bn sukuk programme is expected to be in place by the end of the month, with an issuance of five-year sukuk worth about $500m possible soon after, said Daniele Vecchi, MAF Holding's head of group treasury.
"At the moment it's probably a more favourable environment in the sukuk space than in the conventional space," said Mr Vecchi.
"Investors in Europe at the moment won't be the backbone of any transaction in the Middle East."
The proceeds would fund expansion plans worth $2bn for malls and shopping centres in Lebanon, Egypt and Syria, alongside plans for a hypermarket in Erbil in Kurdistan.
The sukuk sale is being arranged by Standard Chartered and HSBC, Mr Vecchi added.
Rising demand from big institutional investors in the Middle East and Asia such as pension funds has spurred a number of conventional banks to tap the Islamic bond market, as they seek to avoid investments that earn interest, prohibited under Sharia.
At the same time, cash-strapped European lenders are viewed as less likely to buy into Islamic instruments as they shore up their capital buffers.
In May HSBC Middle East tapped credit markets in what was at the time one of the biggest sukuk sales by a coventional lender.
Companies had been reluctant to issue new debt as crisis engulfs the euro zone and fears of low demand convince companies to hold off on new bond sales.
The use of sukuk has enabled banks in Abu Dhabi to raise large quantities of new finance.
Abu Dhabi Commercial Bank sold $500m of sukuk this month, following an issuance of $650m sukuk by First Gulf Bank in August.
Abu Dhabi Islamic Bank and Al Hilal Bank have also sought sukuk sales.
Union National Bank also sold $400m of bonds at the start of this month.
The rush to raise finance via Islamic loans comes as the ratings agency Standard & Poor's warns that Gulf bond issuers could face difficulties meeting deadlines to refinance bonds and sukuk worth $25bnmaturing next year.
The lack of Islamic bonds carrying a credit rating meant that conventional banks and companies that are already rated could raise finance more cheaply with sukuk than with bonds, said Simon Eedle, the global head of Islamic banking and head of fixed-income markets at Crédit Agricole.
"There's just a severe shortage of rated sukuk, so the demand is very high," he said.