Dubai mortgage lender Tamweel could sell as much as $1.1 billion of Islamic bonds by the end of the third quarter to fund expansion, the company's chief executive said on Sunday.
The money will be used to boost its mortgage finance business in the United Arab Emirates and to expand into Egypt and Saudi Arabia, the largest Arab economy, Adel Shirawi told Reuters.
Tamweel plans to sell $500 million of Islamic bonds, or sukuk, and $300 million of convertible sukuk, which will give investors the right to exchange the bonds for Tamweel's shares, he said.
Islamic bonds are typically backed by physical assets that pay a dividend or rent to bondholders rather than interest, which Islam equates with usury. "The $500 million sukuk could be finished in six months, and the convertible faster than that," Shirawi said.
Tamweel said on Saturday it would allow foreigners to own up to 40 percent of its shares to prepare for the convertible sukuk sale.
Tamweel is also looking to sell $300 million of Islamic bonds backed by residential mortgages, in what could be the first real securitisation in the United Arab Emirates.
"We should conclude this milestone deal in the next couple of months," he said. The asset backed securities would have a maturity of 15 years, he said.
The UAE's first securitisation was a $350 million bond sold in 2005 by Emirates National Securitization Corp. The bond was backed by a cash deposit and so is not consider real securitisation.
Tamweel is considering expanding into Saudi Arabia and Egypt as its first international ventures, Shirawi said. "We are a market maker and if we enter those markets we will stimulate their growth," he said.
Saudi Arabia is preparing a mortgage law as part of plans to meet demand from a rapidly growing population. The kingdom, the world's top oil exporter, will need to build 1.5 million homes by 2015, al-Rajhi Banking & Investment Corp estimated in January.
Egypt, the most populous Arab country, has set up a mortgage authority to regulate the growing market for housing loans. Tamweel's rival Amlak Finance has entered the Egyptian market and plans to expand foreign operations as competition and high interest rates squeeze margins in Dubai, Amlak's chief executive said last year.
The UAE central bank turned down Amlak's application for a banking licence. Tamweel is still waiting for word on its bid for a bank licence, which would allow it to collect deposits and reduce the cost of funds it lends as mortgages.
"I am much more focused on securitisation than on the licence," Shirawi said. "With securitisation we can tap tens of billions of dollars."
With demand growing among the world's 1.2 billion Muslims for investments that comply with their beliefs, more Gulf Arab companies are selling sukuk.
Gulf companies sold $18.2 billion of bonds last year, up from $3.2 billion in 2005. Sukuk accounted for most of the deals. Only part of Tamweel's convertible sukuk will be exchanged for shares. "We don't want a lot of equity coming in and a lot of dilution," he said.
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