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| Abu Dhabi Islamic Bank | |
| Size | $1 billion perpetual non-call six-year hybrid tier 1 sukuk |
| Bookrunners | ADIB, HSBC, Morgan Stanley, National Bank of Abu Dhabi, Standard Chartered |
| return to the Middle East and Africa Deals of the Year index | |
With little happening in regional equity issuance, the most important deals in 2012 in the Middle East, even more than other emerging regions, were in debt – and, in particular, sukuk. This was the year when Islamic capital market issuance really found its voice, from Qatar’s international record $4 billion sukuk to a Turkish sovereign debut, Axiata’s dim sum sukuk and important domestic deals in Saudi Arabia and Malaysia. There was a record $144 billion of issuance in 2012, according to Ifis, part of the Euromoney group.
You can read more on some of these deals in our Islamic finance awards, but the trend warranted recognition in this section too, and we selected Abu Dhabi Islamic Bank’s $1 billion tier 1 perpetual, launched in November.
This deal logged a number of firsts. Most important, it was the first ever Shariah-compliant tier 1 issue – in fact, the first ever tier 1 instrument issued by a Middle Eastern bank, whether in sukuk or conventional form. Being the first Basle III-compliant issue from the region, it has become a benchmark and ought to lead to many similar deals in future.
“This is a market-changing transaction for the UAE and the region,” says Tirad Mahmoud, Abu Dhabi Islamic Bank’s chief executive. “It marks a key milestone not only for ADIB but for the global Islamic banking industry. For the first time, Islamic banks are able to raise alternative tier 1 capital according to the Basle standards to boost growth.”
It’s the knock-on effects of the deal, as a benchmark and an illustration of appetite for hybrids, that particularly appeals. “This is part of the evolution of the sukuk sector,” says Mohammed Dawood, global head of sukuk financing at HSBC, one of the bookrunners. “Historically, this market has been characterized by being a vanilla, five-to-seven-year market, and typically senior transactions. But over the last year we’ve seen signs the market is moving with the times, adapting and showing innovation. That’s very much represented by this transaction.”
In some respects it is strange that Islamic perpetuals have not been issued before. “A hybrid equity instrument sits very well within the overall principles of Islamic finance and Shariah law,” says Dawood. “The closer you move towards equity, the less structuring challenges there are.” On the roadshow – in the Middle East, Asia and Europe – no questions came up around structure or approval, which was particularly helpful when explaining the deal to conventional investors. “People understood it,” says Dawood. “Everything clicked and this should be a natural asset class for Islamic finance.” Mahmoud agrees: “The drivers of the deal’s appeal are simple to understand. The instrument was mutually beneficial, transparent and simple.”
Having gone out with 7% guidance, the leads were swiftly swamped; the order book eventually hit $15 billion, the highest-ever level of oversubscription in a global sukuk. Tightening steadily, the deal eventually came at a coupon of 6.375%, low for international dollar tier 1 issuance in any market. Considering this was the first publicly offered bank capital instrument from the UAE since February 2008, the appetite was extraordinary, and remains so; in the following month the note traded up to 5.2% in the secondary market as others sought to gain exposure.
There ought to be more deals like this, as other Islamic banks grow and seek to diversify their sources of funding. Dawood notes “a marked contrast” in the response from institutions to this type of instrument. “We were marketing hybrid instruments prior to ADIB, and clients were dismissive of them: they were seen as expensive. Post-issuance there has been a complete sea change.”
