[SINGAPORE] Singapore investors dipped heartily into the world's first syariah- compliant Tier 1 perpetual sukuk (Islamic bonds) despite the financial centre not being known for its appetite for Islamic finance.
So keen were Singapore investors on the offering that they accounted for 23 per cent or US$3.5 billion of the US$15.5 billion order book for Abu Dhabi Islamic Bank's (ADIB) US$1 billion Tier 1 perpetual sukuk. In the end, however, allocations were scaled back and they ended up with 18 per cent of the issue.
ADIB, majority owned by the Abu Dhabi royal family, last week sold the world's first perpetual sukuk issued by a bank in the international market.
Abu Dhabi is the capital of the United Arab Emirates (UAE) and the largest of the seven member emirates of the UAE.
"This strategic transaction marks a key milestone for the global Islamic finance industry and a major and rare innovation by an Islamic bank," said the bank in a statement.
The US$1 billion perpetual non-call six-year issue was priced at an expected profit rate (or coupon) of 6.375 per cent, which is one of the lowest rates achieved for any perpetual instrument by a global bank, it said. Islamic finance does not allow interest to be paid. Investors instead are regarded as partners and share in the profit of the enterprise.
Non-call means the bank will not redeem the perpetual before its sixth year.
Initially, the bank was looking at raising US$500 million. But given the overwhelming demand from investors, the deal was upsized to US$1 billion.
Roadshows before the sale took place in the UAE, Hong Kong, Singapore, London, Zurich and Geneva, said a bank source.
Initial guidance for the deal was in the "7 per cent area", the source said.
It was then revised to 6.5 per cent, plus or minus 125 basis points before settling at 6.375 per cent, he said.
It has been trading very well since then, he added.
Yesterday, the sukuk were quoted at US$104 with the yield tightening 12 per cent to 5.6 per cent. When bond prices rise, the yield falls.
ADIB, HSBC, Morgan Stanley, National Bank of Abu Dhabi and Standard Chartered handled the offering.
Allocations were scaled back for everyone because of the huge demand. Singapore investors, who accounted for 23 per cent of the demand, were allocated only 18 per cent of the issue, similar to Hong Kong, said the source.
"Hong Kong and Singapore were by far the largest investors", accounting for most of the 38 per cent allocated to Asia, he said. There were some Bruneian accounts, he added.
Investors in the Middle East had 32 per cent, followed by Europe (26 per cent) and 4 per cent for US offshore investors. By investor type, private banks took 60 per cent, asset and fund managers bought 26 per cent, commercial banks 11 per cent, and other 3 per cent.
There were no Malaysian names, the source said.
It seems that despite Kuala Lumpur being the world's biggest Islamic finance centre, accounting for about 60 per cent of global sukuk sales, perpetual instruments have not been as popular.
"During some preliminary conversations with Malaysian investors, some of the feedback was that they are not so comfortable with perpetual sukuk instruments," the source said.
Earlier this year, Malaysia Airlines sold RM1 billion of perpetual sukuk, in a private placement at a yield of 6.9 per cent - the first Islamic bond with no fixed maturity sold in Kuala Lumpur.
Given Singapore's enthusiastic response, bankers think the Republic's Islamic finance drought may be ending.
Henrik Raber, Standard Chartered's global head of debt capital markets, said the transaction had demonstrated excellent demand.
"In particular, it shows good appetite from Singapore investors for high- quality Islamic products. This is not a surprise due to Singapore's role as a large wealth management centre in the region," he said.
"This sets the stage for perpetual capital securities in syariah-compliant format and may attract Malaysian and Indonesian issuers of syariah-compliant securities to raise capital in Singapore," said Mr Raber.
Commenting on ADIB's transaction, its chief executive Tirad Mahmoud said the outstanding success of the issue is a testimony to the bank's strong brand and credit credentials in global capital markets.
"We are proud at ADIB to lead the way in industry best practice and standards setting with yet another successful syariah-inspired innovation," he said.
"ADIB has always been proactive in complying with new rules and regulations. The new issue designed, among various things, to boost Tier 1 capital to comply with Basel III global standards in anticipation of its implementation in the UAE is a testimony to ADIB's forward-looking approach."