UAE demand for Islamic syndicated loans on the rise

Amir Riad, the head of investment banking at Abu Dhabi Islamic, says the proportion of sukuk versus conventional bonds is still on the rise. Satish Kumar / The National

Demand for Islamic syndicated loans is on the rise in the UAE as Sharia-compliant debt instruments become more mainstream, says Abu Dhabi Islamic Bank (ADIB).

Islamic syndicated loans, in which a group of Sharia-compliant financial institutions pool together to fund a client, are doing especially well amid tightening supply of cash to lend, said Amir Riad, the head of investment banking at Abu Dhabi Islamic.

“More and more corporations are going for Islamic loans,” Mr Riad said in an interview in Dubai. “It’s become a mainstream form of financing for corporations. The stereotype that Islamic financing is complicated is a thing of the past. The industry has set a standard.”

Some US$9 billion in Islamic debt was issued last year, a 30 per cent increase over the previous year, when $6.79bn was raised, Mr Riad said.

Syndicated loans grew last year to the highest levels in the Arabian Gulf since 2008 as demand outstrips appetites for traditional bank loans, bonds or sukuk.

Total syndicated loans in the UAE last year rose by 22 per cent to $42.3bn versus $34.7bn in 2014, according to Bloomberg data.

The rise of syndicated loans is also a shot in the arm for banks, providing them with extra cash from arrangement fees at a time when interest-generating areas of the banking industry, such as lending to small and medium-sized enterprises, are coming under pressure as the economy slows.

Mr Riad said, however, that despite the collapse in oil prices, infrastructure spending by Dubai and other emirates ahead of Expo 2020 in Dubai has acted as a buffer for corporate financiers who are seeing less appetite for debt in other areas that have been hit by the economic slowdown.

Refinancing of debt is also helping its corporate finance business, which ADIB started in earnest in 2009.

The bank, Mr Riad said, is also chasing returns out of the UAE in countries in the Middle East including Egypt and Turkey, whose economies are less reliant on oil to hedge against any further slowdown at home.

“We still see 2016 to be an equally strong year for our business,” he said. “The UAE economy is still in good shape.”

While Islamic syndicated debt is on the rise, sukuk issuances in the UAE had a less-than-stellar year in 2015, dropping to $4.35bn compared to $6.3bn in 2014. Yet despite the drop in real terms, the proportion of sukuk versus conventional bonds is still on the rise, said Mr Riad.

Of the total $11bn of publicly traded debt issued last year, about 38 per cent was in the form of sukuk compared with 29 per cent in 2014.

Sukuk, also known as Islamic bonds, have come a long way in the past decade but are still not that easy to trade.

The real boost, said Mr Riad, will come when sukuk get a bigger share of global bond indexes.

“The inclusion of these instruments in some of the global indices, which has not yet happened, will be a game changer,” Mr Riad said.

“I think that will be the turning point for liquidity in this business because a lot of the fund managers globally are index trackers. We believe that this will be a positive factor that will improve the liquidity of the market.”

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