Qatar Islamic Bank , the Gulf Arab state's largest sharia-compliant lender, returned to global debt markets after two years with a $750 million Islamic bond sale on Wednesday, tapping into strong liquidity for regional issuers.
The lender priced the five-year sukuk at a profit rate of 2.5 percent, and a spread of 175 basis points over midswaps, tighter than the earlier guidance after strong investor interest.
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While banks in Qatar are very liquid, much of this cash is held in local riyals. With a number of infrastructure projects in the pipeline ahead of the country hosting 2022 football World Cup, lenders are keen for longer-term dollar funding.
Order books for the issue were reportedly over $6 billion ahead of launch, according to lead arrangers. Much of this was likely to have come from cash-rich Islamic investors held back by limited sukuk supply in the market.
"This ($6 billion order book) demonstrates the pent-up demand in the market for sukuk and should act as a stimulus for further issuance for the rest of 2012 and well into 2013," said Jason Kabel, head of fixed income at Bank of London and The Middle East.
Ernst & Young estimates global outstanding demand for sukuk to total about $300 billion, while new issuance this year may not be much over $100 billion with growing appetite from banks.
QIB, whose biggest shareholder is the country's sovereign wealth fund, the Qatar Investment Authority, received approval for a new $1.5 billion sukuk program last month, and this issue will be the first sale under it.
QIB only has one outstanding sukuk, its $750 million deal completed in 2010, which was issued at a profit rate of 3.856 percent.
That sukuk, which came under selling pressure this week to make room for the new issue, was bid at a yield of about 2.18 percent on Wednesday afternoon, according to Thomson Reuters data.
QIB completed investor meetings earlier this week in London. HSBC Holdings , Standard Chartered , Deutsche Bank and Qinvest, part-owned by QIB, were joint lead managers on the deal.
Earlier this week, another regional lender, First Gulf Bank , reopened Gulf primary issuance with a $650 million five-year bond which was also substantially oversubscribed.
(Reporting by Rachna Uppal; Editing by David French and Dinesh Nair)