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Real estate sukuks reach record levels of issuance

European demand drives up volume of issuance.

Euromoney Liquid real estate March 2007 

The level of demand – and potential supply – for real estate sukuk deals has been dramatically demonstrated by two new issues over the past three months.

The deals – from Aldar Properties and Nakheel – rode high on the current global wave of demand for Shariah compliant fixed income products.

Nakheel’s deal, worth $3.52 billion, ranks as the largest ever sukuk in any asset class, while Aldar’s $2.53 billion deal was the third largest ever. Both provide the companies with cash for projects, as well as enabling them to improve their financial flexibility and efficiency. Aldar chose National Bank of Abu Dhabi (NBAD) and Barclays Capital to arrange its deal, and Nakheel chose Dubai Islamic Bank (DIB) and Barclays Capital to run the books.

The deals linked into the companies’ equity stories, with Nakheel giving credit holders the right to subscribe to shares in the event of an IPO, and Aldar offering a convertibility option and so giving credit holders the option to convert the paper into shares after a certain period. "The convertible element of sukuk is relatively new concept in this region, but it made the deal even more attractive and gave us the option at maturity to pay back cash or convert the credit into shares depending on our liquidity at that time," says Shafqat Malik, chief financial officer at Aldar Properties, whose book was five times over-subscribed with the deal pricing tightly at 65bp.

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