A new market in convertible sukuks
While Europe has enjoyed a boom of real estate convertible issuance, the Middle East has come from nowhere to become a big market.
It started in January 2006 with a $3.5 billion pre-IPO convertible sukuk (Islamic law-compliant bond) for the Ports, Customs and Free Zone Corporation (PCFC), a subsidiary of DP Ports, the Dubai company which bought UK ports and ferries operator P&O in January 2006.
Other than the intrinsic merits of PCFC, the attraction for many investors was the ability to gain exposure to Middle Eastern stocks, many of which are either illiquid or have restrictions on foreign ownership. Investors in the two subsequent bonds – from real estate companies Nakheel, the property arm of Dubai’s DP World, in December 2006 and Abu Dhabi-based Aldar Properties in February this year – have had similar motives.
"Aldar, for example, traded just $4 million a day," notes Doug Decker, head of equity-linked origination at Barclays Capital, which was global coordinator on the deal with Credit Suisse and the National Bank of Abu Dhabi. "So to build up a $20 million position [in stock] would take a month.