Case study: Aldar Investment Properties’s four-times oversubscribed debut green Sukuk

Aldar Investment Properties (Aldar) issued a US$500 million 10-year Reg S green Sukuk facility on the 18th May 2023, receiving total orders of over US$2.3 billion. The half-billion facility represents Aldar’s debut issuance under its US$2 billion corporate Sukuk program.

Oversubscribed by four times, Faisal Falaknaz, the acting chief financial and sustainability officer at Aldar, opines that the issuer’s pricing and pre-hedging strategy contributed to the strong demand.

“Over the course of the issuance process, we deployed a clear and focused price tightening strategy, which yielded positive results with healthy levels of demand at numerous price levels,” Faisal told ISFI.

According to Faisal, the deal was priced via intraday execution on the 17th May with initial price thoughts released at 10 am UAE time in the 10-year treasury (T) +185bps area. By 1pm, the orderbook crossed US$1.9 billion and an orderbook update was released.

By 2 pm, the books crossed US$2.3 billion and price guidance in the T +160bps region was released. The books went publicat 4 pm with the final spreads set at T +150bps, at a reoffer yield of 5.04%.

According to Faisal, Aldar was reasonably certain in 2021 and 2022 that an issuance would take place in the near future and focused on securing fixed rate forward starting swaps. It capitalized on lower interest rates at the time, which enabled it to lock-in favorable rates in anticipation of issuing a debt instrument.

“Over the last nine months in particular, the value of those swaps increased considerably, on the back of the Fed [US Federal Reserve] tightening and the overall increase in the level of interest rates. The issuance was priced with a 4.87% coupon rate and achieved an all-in cost of 5.04%. The swaps resulted in the issuance’s effective funding rate standing at 3.85%,” Faisal detailed.

Tapping the international market, the issuance saw participation from the MENA region at 54%, Europe at 37% with the remaining investors hailing from Asia. By investor type, fund managers represented the lion’s share of the facility.

More notably, however, is the proportion of investors from dedicated ESG funds which represented over 23% of the final allocation, according to Faisal.

The proceeds from the facility, which complies with International Capital Market Association and Loan Market Association principles, will be allocated to finance, refinance or invest in eligible green projects under Aldar’s Green Finance Framework.

The framework governs investment in sustainable projects including green buildings, property upgrades to enhance energy efficiency, sustainable water management, pollution control measures and renewable energy sources.

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