SINGAPORE - Singapore investors dipped heartily into the world's first syariahcompliant 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.
On Wednesday, 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.