Emirates NBD, the biggest bank by assets in the UAE, plans to raise $100 million (Dh3.67m) for its new Islamic bond and aims for annualised returns of 12 per cent over the next four years.
The Emirates Sukuk Fund No. 1 will seek to take advantage of the high yields currently available in Islamic bonds because of the global financial crisis, the bank said in a statement yesterday. The fund will be managed by Emirates Investment Services (EIS), the bank's asset-management unit, and will be EIS's 14th offering.
"Now is a great opportunity to buy sukuk at cheap prices," said Jamal Bin Ghalaita, General Manager of Consumer Banking and Wealth Management at Emirates NBD. "We believe much of last year's panic-selling in this market was unjustified, but it means these fundamentally strong assets are available at extremely attractive valuations."
"The market is in distress and we think this particular asset class offers a great opportunity for investors," Deon Vernooy, Senior Executive Officer at EIS, said at a news conference yesterday.
"We would be disappointed if we don't raise between $50m and $100m", for the close-ended fund, he added.
The fund opens with a minimum investment of $25,000 for individual investors and $1,000,000 for institutional investors. The average yield on Islamic bonds has jumped after the onset of the global credit crisis as investors are pricing in a greater risk of default.
Average yields on sukuk, or Islamic debt, rose last month to a record 11.91 percentage points more than the London interbank offered rate, or Libor, compared with 1.99 percentage points in February 2008, according to the HSBC Nasdaq Dubai US dollar Sukuk Index.
The spread narrowed to 11.02 percentage points yesterday. The Emirates Sukuk Fund will invest in seven to eight bonds including those of the Dubai-owned Jebel Ali Free Zone Authority, Aldar Properties, Abu Dhabi's second-biggest real-estate developer by market value, and Abu Dhabi Islamic Bank, the UAE's second-biggest bank complying with Islamic banking rules.
Sales of Shariah-compliant debt fell to $13.6bn last year from a record $30.8bn in 2007, according to data compiled by Bloomberg. The market for Islamic debt had doubled each year since 2004 and was estimated at $100bn in the middle of 2008, according to IMF statistics.
EIS, which manages a little less than $2bn in assets, will start an emerging market fixed-income fund in March to invest in conventional bonds and a hybrid sukuk-equity fund that will buy high dividend yield stocks, said Haroon Ahmad, Head of Business Development at EIS.