Abu Dhabi-based Al Hilal Bank came to the market for the second time with a US$500 million perpetual additional Tier 1 Sukuk issuance on the 24th June 2014. Priced at par with a profit rate of 5.5%, the Sukuk represented the lowest coupon ever achieved by any bank for a US dollar Tier 1 issuance outside of the US since 2008. The Sukuk was raised to improve the bank’s capital adequacy ratio and has allowed it to be on par with other regional peers.
Al Hilal last participated in the Sukuk market in October 2013 with its inaugural senior Sukuk offering worth US$500 million that was structured to enhance compliance with Basel III, the voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk.
Marking the first Tier 1 issuance out of the Middle East since May 2013, the transaction was nine times oversubscribed and gained orders worth US$4.5 billion from over 200 investors from the Middle East, Asia and Europe. It had a diverse geographical distribution: MENA region (40%), Asia (31%), and Europe (20%). As for the investor type the Sukuk was allocated to: fund managers (32%), private banks (31%), banks (29%), and insurance companies and pension funds (8%).
Speaking to Islamic Finance news, Lim Say Cheong, the executive vice-president of investment banking at Al Hilal Bank, explained that the Mudarabah structure was used because it was a familiar structure for the investors as it suited the banks requirements and in line with recent precedent cases and similar transactions of this nature.
Commenting on the challenges faced in the process of the Sukuk issuance, Lim said: “Being the first transaction from the region to include the point of non-viability language as well as the loss absorption mechanics, the biggest challenge in this transaction was ensuring that the UAE central bank was comfortable with the mechanics of the structure in the absence of the Basel III framework yet to be implemented in the UAE.”
This landmark transaction achieved several milestones, including: (1) the first ever additional Tier 1 instrument by a MENA bank to include contingent point of non-viability (2) the first ever fully compliant additional Tier 1 instrument with Basel III, on a pre-emptive basis, from MENA (3) the lowest coupon ever achieved by a bank on a fully Basel III compliant Reg S US dollar-denominated additional Tier 1 instrument. Given the approach rating agencies usually take for subordinated issuances, the bank felt the best approach was to proceed without a credit rating.
Joint lead managers for this standalone issuance included Al Hilal Bank, Abu Dhabi Islamic Bank, Al Rayan Investment, Citigroup, Emirates NBD Capital, HSBC, Sharjah Islamic Bank, National Bank of Abu Dhabi and Standard Chartered Bank. — NA
Al Hilal Bank Tier 1
US$500 million
24th June 2014
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Issuer | AHB Tier 1 Sukuk |
Obligor | Al Hilal Bank |
Issuance price | 100% |
Purpose of issuance | Improve capital adequacy ratio |
Trustee | Maples |
Tenor | Perpetual |
Coupon rate/return | 5.5% |
Payment | Semi Annual |
Currency | US dollar |
Maturity date | Perpetual |
Lead manager(s) | Al Hilal Bank, Abu Dhabi Islamic Bank, Al Rayan Investment, Citigroup Global Markets, Emirates NBD Capital, HSBC Bank, National Bank of Abu Dhabi, Sharjah Islamic Bank, Standard Chartered Bank |
Bookrunner(s) | Al Hilal Bank, Citigroup Global Markets, Emirates NBD Capital, HSBC Bank, National Bank of Abu Dhabi, Standard Chartered Bank |
Governing law | English |
Legal Advisor(s) / Counsel | Allen & Overy — Linklaters |
Listing | Irish Stock Exchange |
Shariah advisor(s) | Al Hilal Bank, Standard Chartered Bank , Citi |
Structure | Sukuk Al Mudarabah |
Investor breakdown |
Type:
Private Banks — 31%
Fund Managers — 32%
Banks — 29%
Insurance/Pension Funds — 8%
Region:
MENA — 40%
Asia — 31%
Europe — 20%
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