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TDIC's $1bn sukuk highlights investor interest

A $1bn sukuk issue by Abu Dhabi's Tourism Development & Investment Co (TDIC) signals a growing investor appetite for quality Islamic bonds, with more sukuk likely to be issued next year, bankers and analysts said.

The $1 billion five-year Islamic bonds, or sukuk, issued by government-owned TDIC was the largest in the Gulf Arab region in 2009 and generated orders worth $6.7 billion. It was part of a $1.45 billion sukuk programme which has won top rating from three major ratings agencies.
"It gives a good sign that there is a strong desire for sukuk especially for the right type of risks such as TDIC and the likes," said Sarie Arar, executive vice president of corporate and investment banking at Al Hilal Bank.

"These bonds also started trading in the secondary market highlighting the demand for such instruments," he said on Thursday.

Businesses including banks especially from Abu Dhabi have been tapping the bonds market in recent months to raise funds after being hit by the global credit crunch.

Gulf issuance of conventional as well as Islamic bonds in 2009 has remained well below 2008 levels and has been dominated by sovereign and quasi-sovereign issuers from Qatar and the United Arab Emirates' Abu Dhabi.

"There has been a fresh yield curve after the massive debt issued by Abu Dhabi Inc companies, and the TDIC issue appealed to fixed income buyers signalling there is demand for good quality credit that has good sponsorship," said the Dubai-based head of Islamic banking at an international bank.

Several other sukuk could hit the market in 2010, he said.

"The outlook is pretty positive in the first half of 2010 if the credit market continues its rally. Spreads have tightened and issuers will take advantage of this," said the banker, who asked not to be named due to the bank's media policy.

The bond issue by TDIC - developer of major cultural, residential and tourism projects in Abu Dhabi -followed a $500 million bond issued by Kuwait Projects Co (KIPCO) last week which drew orders of $3.3 billion.

"It is a function of how open financial markets are. There is a lot of financing that needs to be raised, whether sovereign or corporate, Islamic or conventional it is difficult to judge. But when you do have them, a meaningful percentage would be sukuk," said Dino Kronfol, managing director of Algebra Capital.

While the outlook is encouraging, more standardisation is needed in the sukuk marker, the Dubai-based banker said.

"It would make an Islamic bond more appealing if there was uniformity across the Islamic universe with investors and issuers not having to worry about structural considerations," he added. (Reuters)

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