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GCC Bonds: Appetite remains strong

USD34bn GCC bonds issued last year; 2012 pipeline healthy

By Adnan Halawi, Team Leader – Fixed Income, Zawya

GCC entities issued USD34bn bonds in 2011, slightly down from 2010. Adnan Halawi, Zawya’s Fixed Income Analyst, attributes the decline to the effects of the Eurozone debt crisis, the Arab Spring and a shift to sukuk.


2011 was a good year for the Gulf bonds market, but not the best on record. Data compiled by Zawya Bonds Monitor show an 11% decrease in total bonds issued in the GCC during 2011 to USD 34 billion from USD 38 billion in 2010. These figures include all corporate and sovereign bonds out of the GCC with tenors of one year and above.

The decline could be attributed to many factors including the Arab Spring – especially in Bahrain – the Eurozone debt crisis, and an increasing interest by issuers to sell debt using Shariah-compliant channels like sukuk. Yet, regional issuers benefited from international investors’ strong appetite for their debt and obtained high ratings from global rating agencies, achieved oversubscription, and announced new programs even if some were shelved to 2012.

Source: Bonds Monitor, Sukuk Monitor

The UAE continues to be the biggest issuer of bonds in the GCC with USD 16.5 billion issued in 2011, up from USD 12.9 billion in 2010. Qatar came in second with USD 9.7 billion followed by Kuwait with USD 6.4 billion.

Source: Bonds Monitor

GCC borrowers issued their bonds in 12 currencies worldwide, but the US dollar remained the currency of choice. USD-denominated bonds grabbed USD 14.4 billion, or 42%, of the total. Kuwait dinar (KWD) ranked second with USD 6.4 billion thanks to abundant treasury issuance by the Kuwaiti central bank.

The corporate sector issued only 21% of the total while the remaining was issued by sovereign and quasi-sovereign issuers. This comes as no surprise in a region where most issuers are government owned, backed or supported. This reason could also be behind the fact that the biggest chunk of the rated bonds issued during the year obtained the highest ratings from international rating agencies.

The London Stock Exchange (LSE) remained the favorite listing bourse for GCC issuers. The LSE seized 13 GCC bond listings with a combined total of USD 12.4 billion – or a hefty 36% of the total. Luxembourg stock exchange ranked second.

Bank of Tokyo Mitsubishi UFJ and HSBC took top ranking in the Zawya Bonds Monitor league tables for lead managers for the year 2011.

The sector breakdown comes in line with the economic and business nature of the GCC region. Proceeds from bonds issued in 2011 went to governmental institutions, financial services, oil and gas, power, transport and real estate sectors.

In terms of size, the biggest issuers were the Qatari government, UAE’s IPIC, Aabar and Emirates airline.
As much as 35% or USD 12 billion, of the total were issued in the form of treasury bonds while 60%, or USD 20.7 billion, were issued in the form of Eurobonds, Bonds Monitor data showed.

Click here to view our Bonds Yearly Review for the year 2011

GCC bonds timeline

What follows is a timeline of the major events and developments that took place in 2011 and shaped the bonds industry, some of which are expected to leave their impact and shape the year 2012 as well.

Jan Qatar Central Bank Issues QAR50 Bln Bonds, Sukuks View
Feb GIC successfully issues MYR 600 Million Medium Term Note in Malaysia View
Mar Abu Dhabi’s IPIC Sells Bonds Worth EUR2.5B, GBP550M View
Apr Mubadala Sets Final Pricing On Two-Part Dollar Benchmark Bond View
May Aabar Prices EUR1.25B Exchangeable Bond Over Daimler Shares; Demand High View
Jun Emirates Airline Prices $1B 5-Year Bond At 99.904, Swaps +3.3 View
Jul NBAD Issues YPY10 billion Samurai Bond View
Aug Qatar National Bank To Set Up $7.5B Bond Program View
Sep NBAD issues 25 year private placement under its EMTN Programme View
Oct Standard Chartered brings international investors to meet issuers from the Middle East View
Nov Union National Bank’s $400m bond successful in tough market View
GBSA publishes inaugural Standards for Gulf Debt Issuers View
Qatar Sells $5 Billion 3-Tranche Bond Into Heavy Demand View
Dec Qatar’s Successful $5 Bln Bond Seen Heralding More Issuance View
Taqa issues two bonds to raise $1.5b, repay debt View
Markaz closes bond issuance View
QNB Group and Qatar Development Bank – QDB announce the completion of the first treasury bills trade on the Qatar Exchange View
GBSA publishes compendium of GCC local currency government markets View

Some of the trends and events that took place in 2011 in the GCC bonds market could be summarized as follows:

– Many issuers, including Dolphin Energy, Doha Bank and TDIC, chose to shelve their issuance plans due to unfavorable market conditions despite conducting roadshows.
– Many issuers – and some for the first time – chose to go for Islamic bonds as an alternative source of funding. These include HSBC Middle East, Taqa and Majid Al Futtaim Group.
– Qatar’s decision to list and trade bonds was perhaps the most important step toward deepening the regional bonds market.
– GBSA’s efforts will help increase transparency and consolidation.
– Kuwaiti issuers, including CFC, UASC and Markaz, returned to the market.
– Bahrain maintained a reasonable issuance pace despite the turmoil and an absence of corporate issuers.
– GCC bonds witnessed strong demand and oversubscription.
– A healthy pipeline aided by construction, expansion and refinancing needs, keeps us optimistic regarding 2012 with many programs announced and non-deal roadshows in 2011.

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Adnan Halawi
Team Leader – Fixed Income



GACA to Sell Saudi’s First Sovereign and Largest Sukuk Ever

By Adnan Halawi Team Leader – Fixed Income, Zawya

14 January 2012
Saudi’s Civil Aviation Authority is about to sell the Kingdom’s first sovereign sukuk ever. Guaranteed by the Ministry of Finance, the SAR 15 billion sukuk opens room for further diversity and growth in the Saudi sukuk market.

The General Authority for Civil Aviation of Saudi Arabia (GACA) is set to sell its first ever sukuk. The issuance of this shariah compliant bond marks several milestones; it would be the first ever sovereign sukuk issued out of the Kingdom, it will be of a benchmark size, it is expected to set the benchmark for more sovereign and corporate sukuk out of the Kingdom this year, it would place Saudi Arabia on the sukuk map like it was never before. Saudi government has been historically shy in terms of raising funds through the debt market when compared to its peer gulf nations.

The GACA sukuk which is guaranteed by the Ministry of Finance of Saudi Arabia will be sold in the domestic market and is restricted to sophisticated investors resident in the Kingdom of Saudi Arabia. HSBC is the sole lead manager and bookrunner for the transaction which was approved by the shariah board of HSBC Saudi Arabia. Proceeds will be used to finance the expansion of Jeddah Airport.

The Saudi Riyal denominated sukuk will be sold in denominations of SAR 1,000,000 and first settlement date is expected to be 18 January 2012. GACA could raise as much as SAR 15 billion (USD 4 billion) this week making the sukuk the biggest ever in the history of the region. The largest Saudi sukuk to date is SABIC‘s second sukuk at SAR 8 billion issued in July 2007.

Data compiled by Zawya Sukuk Monitor shows USD 2.76 billion were sold in sukuk in the Kingdom in 2011 from 5 issuances, compared to USD3 billion in 2010 from 4 issuances. Throughout the years, Saudi Arabia managed to maintain a decent ranking in terms of countries witnessing sukuk issuance worldwide as a number of companies from various sectors sold benchmark sukuk including petrochemical’s SABIC, real estate’s Dar Al Arkan and construction’s Saudi Binladin, Utilities’ Saudi Electricity Company (SEC) and Financial Services’ Saudi Hollandi Bank and Bank Al Jazeera among others. However, this is the first time we see a government guaranteed sukuk, proceeds of which go to the transport sector.

Among Saudi Arabia’s firsts in the sukuk market were last year’s first ever project sukuk in the Kingdom by SATORP and the success of the short-term sukuk model manifested in Saudi Bin ladin 9 months and 1 year sukuks. The latter are the shortest termed sukuk out of the GCC region to date. This year’s GACA sukuk will certainly add to the diversity, richness and depth of the Saudi sukuk experience.

The Kingdom is by far the largest economy in the MENA region and benefiting from high oil returns it is expected to continue to witness economic growth and project finance that will nevertheless be reflected in an active sukuk issuance over the years to come beside the fact that Saudi Arabia is majority inhabited by Muslims and domestic issuance would be shariah compliant to attract Muslim wealth.

Zawya Sukuk Monitor pipeline suggests we might see issuance by Al Maraai – the first by a food company in the kingdom and possibly a fourth issuance by SEC in 2012.

© Zawya 2012


General Civil Aviation Authority Sukuk



Global Sukuk: The Rise of Wakala

By Adnan Halawi, Team Leader – Fixed Income, Zawya

05 September 2011
Global Sukuk Review: August 2011

Despite the summer holidays accompanied by the month of Ramadan, the Islamic bonds market witnessed noticeable activity in August 2011. There were some launches as well as announcements that some much-delayed and long-awaited sukuk would finally be issued, as early as September or in the fourth quarter of the year. A total of USD6 billion of sukuk were sold in August, according to the Zawya Sukuk Monitor, compared to USD4.7 issued in the same period of 2010.

Perhaps the most interesting development in August was the Government of Indonesia selling its first Islamic treasury bills in two consecutive auctions on August 2 and August 23, raising IDR570 billion (USD66.8 million) and IDR330 billion (USD38.7 million), respectively. Both with six-month tenors, the issues see Indonesia following Bahrain, Gambia, Brunei and Malaysia into the short-term sukuk market.

Two long-awaited benchmark sukuk saw the light in the Gulf. The UAE’s Nakheel finally announced it is in the process of issuing the first tranche of its fourth sukuk as part of a restructuring plan. Saudi Arabia’s SATORP received the approval from the Capital Market Authority and said a roadshow will take place in September to sell its long-awaited sukuk.

Just as the month was about to end, Al Hilal Bank announced it might issue a benchmark sukuk to finance its expansion and that this might take place before the year ends. Al Hilal joins a list of Gulf banks that are aiming to sell sukuk for the first time in 2011; others include Qatar’s QIIB and Masraf Al Rayan, and Bahrain’s Al Baraka. Earlier in the month, two Gulf companies issued sukuk: the UAE’s First Gulf Bank sold a USD650 million sukuk on August 2 and listed it on the London Stock Exchange, and Kuwait’s Gulf Investment Corporation issued a second tranche under its MYR program on August 3.

Iran is witnessing increased sukuk issuance. A few months after Mahan Air did an issue in March 2011, it was revealed that Omid Investment Management Corporation is about to issue a similar sukuk.

Wakala Sukuk On The Rise?

An interesting development in 2011 is the increased use of Wakala (Agency) structure in sukuk. Data compiled by Zawya Sukuk Monitor shows USD5.3 billion of sukuk issued in 2011 to date are completely or partly structured as Wakala, up from USD1.8 billion in the same period last year. Interestingly, most of the benchmark, international and cross-border sukuk that were issued in 2011 used the Wakala structure.

A major reason behind this could be the fact that this innovative structure is considered Shariah-complaint in both the GCC and Malaysia. The largest Wakala sukuk in 2011 was the USD2 billion Wakala Global Sukuk which was sold by the Malaysian government in the international markets. An example of a cross-border Wakala sukuk is the Gulf Investment Corporation‘s sukuk program, of which two tranches have been sold so far totaling USD550 million. “We are pleased that the Islamic medium-term notes, which were structured in accordance with the Shariah principle of Wakalah bi Istithmar, was an innovative structure that met the Shariah compliance of both Kuwait, where GIC is based, and Malaysia, where the sukuk is issued,” said Hisham Al Razzuqi, Chief Executive Officer of GIC.

Another benefit of using the Wakala structure is that it enables the originator to utilize certain assets that cannot be traded on the secondary market such as Murabaha and Istisna contracts.

Source: Zawya Sukuk Monitor

The sukuk market has witnessed many interesting developments in 2011 and market activity is expected to pick up in the last third. Apart from the increase in Wakala issues, other trends can be tracked in the previous issue of Global Sukuk Review: Shorter And Wider.

Adnan Halawi
Team Leader – Fixed Income

© Zawya 2011

Global Sukuk: Shorter And Wider

Sukuk issuance speeded up ahead of Ramadan, with short-term and cross-border sukuk witnessing a rising trend, writes Adnan Halawi, Zawya’s fixed income analyst.

July 2011 witnessed the issuance of benchmark sukuk globally. The month started with the closing of a two-tranche USD2 billion Wakala global sukuk by the Malaysian government and ended with the reopening of the Government Investment Issue which helped the government raise another MYR4 billion (USD1.34 billion) in the domestic market.

The Malaysian government also sold a series of BNM-IDMs throughout the month bringing the total of sukuk issued by the Malaysian government in July to USD5.7billion.

Similarly, the GCC region witnessed a relatively fast pace of sukuk issuance during July, albeit at a corporate level. The month started with the closing of an SAR1.8 billion (USD480 million) sukuk by Saudi International Petrochemical Company. Sipchem’s first sukuk was sold domestically, limited to local sophisticated investors, oversubscribed and got listed on Tadawul, the Saudi stock exchange.

Two weeks later, Saudi Binladin Group sold SAR1 billion one-year sukuk domestically. The company’s third sukuk comes on the heels of an earlier nine-month sukuk that was fully redeemed in April. Qatar’s Almana Group chose to sell its second sukuk internationally and managed to sell USD215 million of a sukuk that got listed on London Stock Exchange (LSE).

The biggest deal came out of the UAE, where the country’s fourth biggest lender, First Gulf Bank, announced the sale of a first tranche under its USD3.5 billion program. The bank managed to sell USD650 million to close on August 2 and will also be listed on LSE.

From Kuwait, Gulf Investment Corporation (GIC) priced its second tranche under the MYR3.5 billion MTN program. The MYR750 million (USD250 million) is of a five-year tenor and carries a coupon of 4.9%.

Besides a notable comeback for GCC sukuk, it is worth examining some of the dynamics that shaped the sukuk market in July and thus far this year, dynamics that are expected to persist through the rest of 2011.

Short-term sukuk a global phenomenon

One interesting development in the global sukuk market is the ever increasing number of short-term sukuk. In Malaysia, it is a very common phenomenon to see companies and Bank Negara Malaysia issue short-term Islamic paper – the latter aiming to manage liquidity. Similarly Central Bank of Bahrain and Central Bank of Gambia are regular issuers of short term Ijara and Salam sukuk for the same purpose.

However, this phenomenon seems to be changing into a global one. In July, Saudi Binladin Group issued its second short-term sukuk with a one-year tenor – the first being of a nine-month tenor issued last year.

It was also reported in the press that two Pakistani power companies are issuing six-month sukuk. The first was Kot Addu Power Company (KAPCO) which sold PKR1.5 billion (USD17.3 million) on June 25 while the second is Hub Power Company (HUBCO) which is about to sell PKR2 billion (USD23.1 million) in sukuk. Both are arranged by Meezan Bank and together constitute the first such move in the Pakistani market. This step brings Pakistan, which was absent – at least on a corporate level – back to the forefront of the sukuk market as it has always been.

In a similar direction, Indonesia – home to the biggest Muslim population in the world – reaffirmed plans to sell its maiden six-month Islamic Treasury bills on August 2 as part of its efforts to diversify its Islamic bond instruments.

More cross-border sukuk

Another trend is the increasing number of firms and governments choosing to sell their sukuk outside their home countries. The most prominent are GCC issuers selling sukuk in Malaysia. In July, GIC sold a second tranche of its MYR program in Malaysia, following National Bank of Abu Dhabi, which sold two tranches in Malaysia last year under an MYR1.5 billion program.

The Dubai and Abu Dhabi governments, the second through the transport department, and Bahrain-based Gulf International Bank are all whispered to be seeking to sell sukuk in Malaysia as they look at diversifying their funding options and benefiting from liquidity. Cross-border sukuk is mostly visible through GCC issuers selling debt in Malaysia; yet it is not restricted to these geographical areas. Malaysian Khazanah issued a dual-tranche SGD1.5 billion sukuk in Singapore in 2010.

Global regulatory workshop

Different jurisdictions continue to implement changes and enhancements either to allow or to cater for more sukuk issuance. The latest of these is the Securities Commission Malaysia issuing in July the revised private debt securities (PDS) guidelines, sukuk guidelines and trust deed guidelines to enhance the regulatory framework for fundraising and product regulation in the private debt securities and sukuk markets.

The revised PDS and sukuk guidelines streamline the approval process and time-to-market for the issuance of corporate bonds and sukuk. The revisions also facilitate a more informed investment decision-making process with additional provisions to ensure greater disclosure of relevant information to investors.

Listing and trading sukuk

According to data compiled by Zawya Sukuk Monitor, the value of sukuk listed this year is USD6.9 billion – or 13% of the total sukuk issuance. Knowing the important role of listing and trading sukuk in developing the market, global stock exchanges continue to compete to host the biggest possible number of sukuk.

While Qatar Stock Exchange and Abu Dhabi Stock Exchange are keen to start listing and trading sukuk by the end of this year, Bursa Malaysia and London Stock Exchange succeeded in grabbing the biggest share of listed sukuk this year while Nasdaq Dubai was the biggest absentee.

Other trends include the geographical expansion of the sukuk landscape which was addressed in “Slash Taxes, Spur Sukuk” and the introduction of innovative structures that will be addressed in upcoming issues.

Adnan Halawi
Team Leader – Fixed Income