The $2.8 billion Islamic bond issue from Dubai's ports corporation has attracted intense investor interest and is likely to be oversubscribed by at least 50-75 percent, a lead manager said on Sunday.
The bond's issuer is the Ports, Customs and Free Zone Corporation (PCFC), holding company of Dubai Ports World, which is expanding aggressively overseas and last month made a $5.7 billion bid for UK ports operator P&O.
The Islamic bond, or sukuk, is already the largest in history and the first ever convertible Islamic bond, offering holders 30 percent of the shares of government-owned PCFC's companies if they go public in the next three years.
"The sukuk...is likely to be oversubscribed by at least 50 percent to 75 percent with an expected book size of between $4 billion and $5 billion," Dubai Islamic Bank, co-lead manager with Barclays Capital, said in a statement.
The issue's books opened on December 5 with pricing expected by December 31.
"The majority of the orders and expressions of interest received so far are from international institutional investors," the statement quoted the bank's chairman, Mohammed Khalfan bin Kharbash, as saying.
"The proceeds from the Sukuk are to be used for general corporate purposes, including expansion requirements, and it is being issued at a time when PCFC has made a bid for P&O."
Islamic bonds comply with sharia, Islamic law, which forbids borrowing or lending on interest. Instead, investors receive regular payments based on profits from approved investments.
Kharbash, who is also minister of state for finance in the United Arab Emirates, said the sukuk would have a yield of between 7.25 percent to 8.25 percent per annum if a PCFC firm offered shares to the public.
"If the IPO does not happen, then the yield of the Sukuk will become over 10 percent per annum," Kharbash said.
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