REUTERS

DUBAI

Qatar will sell $4 billion in a twopart Islamic bond sale with pricing due on Wednesday, arranging banks said, after initial price indications were tightened due to massive demand.

The deal, Qatar’s first international sukuk in nearly a decade, has already attracted orders of about $22 billion, allowing the borrower to tap markets for the maximum $4 billion available.

Profit talk for the long five-year portion was revised to 120 to 125 basis points over midswaps, from 135 basis points released earlier in the day. A size for the two tranches is still to be determined.

For the long 10-year portion, guidance was tightened to 160 - 165 bps over midswaps, from 175 bps indicated initially.

Books in Europe are due to close on Tuesday while Asia and Middle East books will close on Wednesday morning.

Qatar may be aiming to maximise orders for the sukuk, which would allow it to make large allocations to global investors and particularly Islamic investors in southeast Asia.

Allocations for big Gulf deals last month, including Bahrain’s 10-year, $1.5 billion sovereign bond, showed investors from outside the Gulf were increasingly muscling in on new issues.

“Indicative pricing is a couple of basis points cheap to the existing conventional curve,” said Doug Bitcon, head of fixed income funds and portfolios at Rasmala Investment Bank in Dubai.

“Bearing in mind that sukuk typically trade inside conventional paper as well as expected demand from regional banks, the indicative pricing is attractive.” Qatar, the world’s top liquefied natural gas exporter, normally doesn’t issue small; it printed a $5 billion, multi-tranche conventional bond last November, and prior to that a $7 billion bond in 2009. The sovereign has not issued a sukuk since 2003, when it priced $700 million of seven-year paper.

The amount of assets made available to back this week’s sukuk suggests Qatar could issue up to $4 billion of paper, though it has no obligation to do so and many in the market expect a smaller amount.

This year’s largest dollar sukuk issue so far is Saudi Electricity Co’s $1.75 billion deal in late March, which Qatar looks able to exceed easily if it chooses.

Several market sources said they expected Qatar’s pricing guidance to tighten before launch.

“They (Qatar) will tighten at least 10 bps...What they are doing is showing generous guidance to get the orders in,” said a fixed income trader at a regional bank.

“Then they will tighten and print big,” he said, predicting Qatar would issue between $2 billion and $3 billion.

Biswajit Dasgupta, head of treasury and trading at Invest AD, said: “We expect that they’ll look to build a really large order book and then tighten the pricing. The market sense is that final pricing will be more or less in line with the current curve for the 2017 maturity, with the sukuk premium making up for this issue’s longer duration.

“We think Qatari banks will be the biggest bidders, although the combination of a high credit rating and the sukuk structure will probably receive decent demand from some Islamic investors out of Asia.” Qatar’s outstanding conventional bonds have tightened since issue in November. The $2 billion, 3.125 percent five-year portion of its last bond was bid at a yield of around 2.2 percent on Tuesday morning, according to Thomson Reuters data. The $2 billion, 4.5 percent 10-year tranche was at 3.23 percent.