Damac sukuk draw underscores Gulf credit appetite

Dubai-based luxury property developer Damac Real Estate Development Limited has returned to the debt capital markets with a $600 million Islamic bond that drew strong investor demand, signalling sustained appetite for Gulf real estate credit despite higher-for-longer global interest rates. The 3.5-year benchmark sukuk attracted an orderbook topping $1.7 billion, excluding interest from joint lead managers, allowing pricing to tighten materially from initial guidance.

The transaction was marketed by Alpha Star Holding X Limited, a special purpose vehicle, with Damac Real Estate Development Limited named as the obliger. Structured as a Regulation S Murabaha sukuk, the notes were priced at par with a semi-annual coupon of 6.125 per cent, after initial price thoughts were set in the 6.625 per cent area. The final yield matched the coupon, reflecting investor willingness to accept tighter spreads for a short-dated, well-known regional issuer.

Bankers involved in the deal said demand was broad-based across regional and international accounts, with particular interest from Middle East asset managers, private banks and a growing cohort of Asian investors focused on Shariah-compliant assets. The size and quality of the orderbook allowed Damac to compress pricing by 50 basis points from the opening range, a notable outcome given ongoing volatility in global credit markets.

The issuance comes as Gulf borrowers continue to tap sukuk markets to refinance maturities and fund selective growth, benefiting from deep regional liquidity and an expanding global investor base for Islamic finance. While conventional bond issuance has faced bouts of volatility driven by shifting expectations around US monetary policy, sukuk demand has remained comparatively resilient, supported by dedicated Islamic funds and crossover investors seeking diversification.

For Damac, the deal strengthens its liquidity profile and extends its maturity curve at a time when developers across the region are balancing robust sales pipelines against elevated financing costs. The company has been active in capital markets over the past decade, building a track record with international investors through both sukuk and conventional bonds. Market participants noted that Damac’s brand recognition, asset base and exposure to Dubai’s prime residential segment helped anchor demand.

Dubai’s real estate market has maintained strong momentum, underpinned by population growth, inflows of high-net-worth individuals and sustained demand for luxury properties. Developers with established delivery records have been able to translate this operating backdrop into favourable funding outcomes, even as investors scrutinise leverage and cash-flow visibility more closely than during earlier cycles.

The Murabaha structure used in the transaction aligns with standard market practice for international sukuk, offering clarity on cash flows and legal documentation for global investors. Regulation S format ensures distribution outside the United States, a route commonly chosen by Gulf issuers targeting a diverse investor pool across Europe, Asia and the Middle East.

Analysts said the tightening achieved on the Damac sukuk reflects a broader trend in which high-quality regional credits are seeing improving execution, particularly at the shorter end of the curve. Investors have shown a preference for maturities under five years, where duration risk is lower and visibility on refinancing is clearer. This dynamic has encouraged issuers to focus on benchmark-sized deals that enhance secondary market liquidity.

At the same time, market participants cautioned that investor selectivity remains high. Orderbooks have been strongest for issuers with transparent balance sheets, identifiable cash flows and assets in jurisdictions with supportive regulatory frameworks. Real estate developers without these attributes have faced more challenging pricing discussions or have opted to delay issuance.