Dubai: Qatar’s second-biggest Islamic lender may sell the nation’s first sukuk in more than 17 months, according to two people with knowledge of the matter.

Masraf Al Rayan has received proposals from banks for a benchmark sized, debut Sharia-compliant offering, the people said, declining to be identified because the information isn’t public. The bank’s spokesman didn’t respond to questions by e- mail and telephone.

“There will always be appetite for sukuk, especially those from Qatar,” Ahmed Shehada, the head of advisory and institutions at NBAD Securities LLC, said by phone from Abu Dhabi on Tuesday. The brokerage is a unit of National Bank of Abu Dhabi PJSC, the region’s second-biggest sukuk underwriter this year. “Given the country’s rating and Masraf Al Rayan’s consistent growth, the sukuk will be a success.”

Investors have been starved of Islamic bonds after sales in the six-nation Gulf Cooperation Council dropped to $3 billion this year, the lowest since 2011. Masraf’s offering would end an issuance drought in Qatar, which is spending more than $200 billion building stadiums, roads, railroads and even a new city before it hosts the 2022 FIFA World Cup. Qatar International Islamic Bank and Qatar Islamic Bank also plan to issue Sharia- compliant bonds, they said earlier this year without specifying a date.

Sukuk Yield

Masraf is one of four Islamic banks in Qatar, which sits on the world’s third-biggest natural gas reserves after Iran and Russia. Its profit climbed 18 per cent in the first quarter to 511 million riyals ($140 million), it said April 20. The lender is rated A2 at Moody’s Investors Service, the fifth-lowest investment grade. Qatar’s rating is Aa2, three levels higher.

The lender hasn’t mandated banks for the sale yet, and it has been months since Qatar Islamic Bank, the nation’s largest Sharia-compliant lender, and Qatar International Islamic Bank announced plans for sukuk. QIB said Jan. 18 its board approved additional Tier 1 sukuk of as much as 2 billion riyals, and QIIB’s board recommended similar securities of as much as 3 billion riyals, it said Feb. 8.

Seven Qatari borrowers have sold sukuk, compared with at least 35 in the United Arab Emirates, data compiled by Bloomberg show. Ooredoo QSC was the last Qatari issuer to tap the market when it raised $1.25 billion in December 2013.

‘Low Coupon’

When it’s sold, Masraf’s sukuk will probably be priced similar to Qatar National Bank’s $1 billion conventional debt due April 2020, Shehada said. The yield has dropped 67 basis points this year to 2.43 per cent on Tuesday.

Masraf’s sukuk would likely price between 90 to 120 basis points over midswaps for a five-year offering, he said. That’s about 140 basis points less than the average yield on Islamic debt in the Middle East, which rose nine basis points this year to 4.4 per cent on Tuesday, according to JPMorgan Chase & Co.’s indexes.

“Given the low coupon they will pay, the issue would be more geared to institutions and pension funds,” Shehada said. “A new issuer in Qatar means investors get to further diversify their sukuk holdings there.”