Dubai Leads The Rise In Islamic Finance
As they were reviewing the bank's funding needs recently, executives at HSBC Holdings decided to take a fresh look at sukuk, or Islamic bonds. Three years earlier, the London-based bank had shelved plans to issue up to $5 billion of sukuk. But, once again, the sukuk market is open for business in the Gulf.
By Angela Shah
As they were reviewing the banks funding needs recently, executives at HSBC Holdings decided to take a fresh look at sukuk, or Islamic bonds. Three years earlier the London-based bank had announced plans to issue up to $5 billion of sukuk under a medium-term financing program, but it never proceeded because the sukuk market, which seized up during the financial crisis, failed to recover. In recent months, however, a decline in yields and a revival of activity persuaded HSBC that the time was right to dust off its plans.
In June the banks subsidiary HSBC Bank Middle East sold $500 million of five-year sukuk priced to yield an expected 3.575 percent. It was the largest sharia-compliant financing ever arranged by a non-Islamic institution. The deal saved money: ?At a yield of 155 basis points over midswaps, the cost was 15 to 20 basis points cheaper than the bank would have paid on a conventional bond issue. The offering also helped HSBC deepen ties with investors in the Gulf, an increasingly important market for the bank.
We wanted to ensure we were capturing as much of the Islamic investor base as possible, says Mohammed Dawood, head of global capital financing at HSBC in Dubai. With this issue we ticked all of the boxes in terms of geographic distribution, Islamic accounts going into the transaction and overall successful secondary market trading as well. About half of the deal was placed with investors in the Gulf, primarily family offices.....