Sukuk market on a roll

6 min read
EMEA, Emerging Markets
Sudip Roy

The sukuk market is fast becoming the centre of activity for CEEMEA issuers, with Emirati malls operator Majid Al-Futtaim and Banque Saudi Fransi becoming the latest to raise funds through the product.

Both issuers printed tight deals, with cash-rich investors taking the opportunity to buy Islamic bonds with attractive profit rates. MAF (BBB/BBB; S&P/Fitch) priced a US$500m 10-year green sukuk deal on Tuesday at 140bp over Treasuries. That was 35bp inside IPTs after books climbed past US$3bn. The profit rate was 5%.

Pricing came inside where Aldar Investment Properties printed its US$500m May 2033 sukuk on May 17, which landed at plus 150bp, and marginally inside where that note was trading when MAF's deal was announced on Monday. While both companies are in the real estate sector, their ownership structures, property portfolios and geographical reach are different, so while AIP was an obvious reference point, it is not a like-for-like comparison, said a lead.

There were also specific credit issues for potential investors in MAF to consider, including a recent change in management. "Despite the unexpected change in MAF’s CEO earlier this year, we are comfortable with the company’s credit profile based on improving financials and comfortable liquidity position," said Faisal Ali, senior portfolio manager at Azimut, referring to the decision in January appoint Ahmed Galal Ismail as chief executive to replace Alain Bejjani after eight years in the role.

The green label was another consideration, especially given criticism of MAF for its decision to develop energy-consuming indoor ski slopes. However, the snow parks are excluded from its green framework and MAF has issued under the format for some years. The lead banker said that some green funds participated in the deal.

With the issue size capped, the sukuk were always likely to be well supported, especially as Ali points out, "MAF is a well-known name among local and foreign investors".

Citigroup, HSBC and Standard Chartered were global coordinators. They were also lead managers alongside Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Dubai Islamic Bank and First Abu Dhabi Bank.

Robust growth

Banque Saudi Fransi was out on the same day with a US$900m five-year sukuk issue, and books opened at 130bp area over Treasuries. Those IPTs were about 15bp–20bp back of where the bank's November 2027s were bid, according to leads. With books rising past US$2.5bn, leads squeezed pricing to plus 105bp for a profit rate of 4.75%.

"We have a positive outlook on Saudi banks, which are benefiting from robust Saudi growth," said Ali, who saw fair value at around plus 100bp.

The deal was only the bank's second in a decade in the US dollar market. In November, it got a book of more than US$3.2bn for a US$700m five-year note.

At A2/A–/A–, the bank is one of the best rated in the GCC. Indeed, since its deal in November, it has been upgraded by S&P and Fitch, which had BBB+ ratings at the time. Moody's has also changed its outlook to positive from stable.

Lead managers on the latest offering, which is expected to be rated A– by S&P and Fitch, were Citigroup, First Abu Dhabi Bank, Goldman Sachs, HSBC, Mizuho and Saudi Fransi Capital.


Banque Saudi Fransi and MAF took the number to five Middle East issuers that have sold US dollar Islamic bonds since May 15, raising a combined US$8.65bn, though US$6bn as from Saudi Arabia. Sukuk issuance from the region this year has grown to US$18.36bn, according to Refinitiv, much bigger than the amount raised by mid-May in the previous three years. Sukuk issuance was just US$5.6bn as of May 19 2022, while by the same date for 2021 and 2020 it was US$6.16bn. Sukuk now account for 36% of overall Middle East issuance volume this year, which stands at US$51.15bn, according to Refinitiv.

"The sukuk market feels bullet-proof for now," said the MAF lead banker.

The market has evolved significantly in recent years with longer tenors, greater depth of funding – with many issuers now eligible for JP Morgan indices – and quicker execution. Moreover, pricing is more attractive for issuers than the conventional market – Bahraini oil and gas company Nogaholding's 10-year sukuk on May 17, for example, was almost 100bp through where it could price an equivalent conventional bond. At the same time, with that note pricing at 6.625%, investors are getting an attractive profit rate.

Allocation statistics also show that deals are no longer solely dependent on regional banks to get them over the line. While Noga's sukuk was overwhelmingly bought by Middle East banks, the green sukuk from Aldar Investment Properties had a much broader investor base. Non-MENA investors got 46% of the paper, while fund managers were the biggest buyers, with 55%.

"Pricing is meaningfully tighter," said a second banker about the sukuk market. "It's also deep and you can get scale. International investors are coming in at the tighter level with the confidence that it will hold [in the secondary] at that level and that they can sell it at that level."

Corrected story: Corrects day of MAF deal