Property developers raise US$4.3 bn in debt issuance

Aljada Discovery Center, Aljada

Property developers in the UAE and the GCC countries have raised US$4.3 billion (Dh15.48 billion) utilising debt market instruments such as bonds and Islamic sukuks to fund existing and future real estate projects, according to latest announcements.

These include the successful closure of the latest US$400 million (Dh1.46 billion) sukuk issuance by Arada Developments LLC, a Sharjah-based developer of mixed-use communities, that was oversubscribed 3.5 times to US$1.45 billion, which has been listed on the London Stock Exchange and the Nasdaq Dubai and the US$300 million sukuk issuance by Binghatti Holdings earlier this year.

The size of the UAE debt capital market (DCM) rose by 10 percent year on year (y-o-y) to US$270 billion outstanding at end-2023 and is forecast to cross US$$300 billion in 2024-2025, according to credit rating agency Fitch Rating. In the GCC, the UAE has the largest US dollar DCM. Nasdaq Dubai will likely continue being one of the top listing centres for US dollar sukuk globally.

“UAE sukuk issuers’ credit profiles are predominantly stable, with 96.5 percent of the sukuk being investment grade and 92 percent on Stable Outlook, with the balance on Positive Outlook,” said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings. “We expect the UAE DCM to continue its growth momentum on the back of capital market developments and diversification of funding. However, risks for DCM growth include rising rates and oil prices, and additionally for sukuk, AAOIFI-sharia standards adoption could add challenges.”

The share of sukuk and dirham issuances in the UAE’s DCM mix is also projected to rise on the government’s implementation of the Dirham Monetary Framework, issuers seeking to diversify funding, and strong investor demand, including from UAE banks that have solid liquidity. The share of dirham in the outstanding DCM mix rose to 20.5 percent at end-2023 from 0.5 percent in 2020, with the balance mostly in US dollars.

The federal government started issuing dirham T-bonds in 2022, and only T-sukuk were issued in dirham after 2Q23. In 2023, sukuk issuance in all currencies expanded by 115 percent y-o-y, while bond issuance rose more slowly, by 23.6 percent. Among US dollar DCM issuances in 2023, sukuk had a sizeable 35 percent share, up from 24 percent in 2022.

Outstanding ESG debt rose 165 percent y-o-y to US$17.1 billion, with 40.2 percent in sukuk. The Higher Sharia Authority directed Islamic banks to include sustainable sukuk and financing as part of business lines.
The news of Arada’s US$400 million sukuk issuance comes after Binghatti Holding raised US$300 million (Dh1.1 billion) through a sukuk in February this year. In 2023, Sobha Realty raised US$300 million through sukuk last year, to fund its projects at Sobha Hartland and launch Sobha Hartland II project that are currently under development.

Rated B1 by Moody’s and B+ by Fitch credit rating agencies, this is the first issuance under Arada’s newly established $1 billion Sukuk programme. The five-year fixed rate RegS Sukuk issuance, rated BB- by Fitch and B1 by Moody’s, was priced at par with a coupon of 8.00 percent, inside the initial guidance area of 8.675 percent for a spread of 355 bps over US Treasuries.

“The trade achieved one of the highest price tightening by a real estate issuer from the GCC, and also priced with a spread which is more than 150bps inside the previously priced debut sukuk,” Arada said in a statement. The proceeds of the sukuk will be used for the management of existing bilateral funding, general corporate purposes and to support development at Arada’s existing projects. The sukuk issuance saw strong demand from both regional and international investors, with a subscription order book of $1.45 billion, 3.5 times the offer size.”

Investor interest for the sukuk was diversified geographically, coming from Europe, the Middle East and Asia. The investors for this issuance include institutional investors, fund managers, High Net Worth Individuals (HNWIs), and banks.
Prince Khaled bin Alwaleed bin Talal, Vice-Chairman of Arada, said: “We are pleased to have enjoyed a successful return to the market with the closure of our second sukuk. This landmark issuance is once again testament to the strong level of interest from institutional investors around the world in Arada’s stable track record, good governance and compelling growth story.”

Abu Dhabi Commercial Bank, Dubai Islamic Bank, Emirates NBD Capital and Standard Chartered Bank acted as the Joint Global Coordinators for the sukuk, while Arab Bank, Kamco Invest, Mashreq, RAK Bank, Sharjah Islamic Bank and Warba Bank acted as Joint Lead Managers and Bookrunners.

Since its launch in 2017, Arada has launched six successful projects in both Sharjah and Dubai, with a combined sales value of Dh60 billion. These include Sharjah’s largest ever mixed-use megaproject, Aljada; the UAE’s first forested community, Masaar; and the ultra-luxury Armani Beach Residences at Palm Jumeirah.

In 2023, the master developer announced a 100 percent increase in the total value of property sold to Dh7.02 billion, compared to the previous year. In total, Arada has sold 14,000 units since inception, valued at over Dh17 billion, with over 9,000 units completed.

According to data from Dealogic, real estate companies in the Middle East raised approximately US$3.6 billion across the bond and sukuk markets in 2023, with the UAE contributing around US$2.1 billion to this total. That included debuts from Sobha Realty, which priced a US$300 million 8.75 percent sukuk in July, and FIVE Holdings, which placed a US$350 million 9.375 percent 5NC2 senior secured Reg S/144A green bond in September, as well as a number of debt sales by Damac Real Estate Development .

This market activity followed an already busy 2022, with approximately US$3.5 billion being raised by the sector in the region, and US$3.8 billion in 2021, according to data from Dealogic. Only US$600 million was raised in 2020 amid the coronavirus pandemic.