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DUBAI: Dubai Islamic Bank (DIB) plans to boost its capital through the sale of a shariah-compliant debt instrument, which would become only the second such deal from a regional lender to shore up core capital ratios.
DIB, the largest shariah-compliant lender in the UAE by assets, said yesterday it would hold investor meetings in Asia, the Middle East and Europe starting on March 7 ahead of issuing the dollar-denominated, benchmark-sized hybrid sukuk, subject to market conditions.
Tier 1 capital is a lender’s core capital, and a key measure of its financial strength. The bank hopes to raise at least $500m from the sale, but the final size will depend on demand.
It follows a highly successful Tier 1 deal by Abu Dhabi Islamic Bank in November, which attracted order books of over $15bn from global accounts, despite the rarity of the deal structure and unfamiliarity among regional investors.
The heavy demand allowed the issuer to price the deal at a profit rate of 6.375 percent, tighter than guidance. The paper has tightened further in secondary trading, and was bid at about 105 cents on the dollar yesterday to yield about 5.3 percent.
Traders and market sources believe DIB will need to price wider than ADIB because it is rated lower; Dubai entities often need to offer a higher premium than Abu Dhabi entities.
“DIB is two notches below ADIB and I don’t expect the same kind of clamour for this issue,” said a regional debt trader, requesting anonymity. However, he added that more regional investors might participate this time. Demand is still expected to be sizeable in view of a lack of sukuk assets in the market and the hunt for ever-higher yields.
A banker covering the region said that in current conditions, the deal could price between 5.75 percent and 6.0 percent, offering a substantial pick-up over ADIB’s trading level at present.
“Where else can you get such yield?” the banker added.
DIB’s hybrid sukuk will be structured similarly to ADIB’s issue. DIB had a Tier 1 capital ratio of 13.9 percent at the end of 2012, compared to 12.6 percent in 2007, according to an investor presentation. Reuters