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UPDATE 2-Gulf sukuk pick up as IDB issues, TDIC mandates

* Gulf sukuk market picks up after months of calm

* Bankers say Abu Dhabi’s TDIC mandates benchmark issue

* IDB prices $850 million sukuk

(Adds analyst comment, background, TDIC mandating banks)

MANAMA, Sept 9 (Reuters) - The Gulf Arab sukuk market showed signs of activity after months of calm on Wednesday, with the Islamic Development Bank (IDB) issuing a $850 million sukuk and Abu Dhabi’s TDIC mandating a benchmark issue, according to bankers.

The $850 million sukuk, or Islamic bond, issued by the Islamic Development Bank (IDB) has been priced at 40 basis points over mid-swaps, a source at an arranging bank.

“It has come at a very decent pricing,” said Mohieddine Kronfol, managing director at Dubai-based fund manager Algebra Capital.

“It was a very useful issue for Islamic banks to diversify their cash into,” he said.

IDB had said the issue, the first tranche of a $1.5 billion sukuk, would be at least $500 million, depending on demand and pricing. The Saudi-based triple-A lender issued the sukuk as part of a $6 billion Islamic bond programme to soften the impact of the financial crisis on its member countries.

The Gulf Arab sukuk market has been lying idle for much of 2009, after issuance was hit last year by the global credit crunch and a debate over the compliance of some of its structures with Islamic law.

Issuance fell 56 percent to $14.9 billion in 2008, according to Standard & Poor’s.

Only sovereign issuers such as Bahrain or quasi-sovereign issuers such as Saudi Electricity 5110.SE have come to the market this year, meeting with strong demand as investors are prepared to return to low-risk issues in emerging markets.

Kronfol said remarks made late on Tuesday by Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum added to positive sentiment on sukuk issued by Dubai-based companies.

The ruler said the emirate’s financial position was improving already, with financial headwinds easing.

Yields on a $3.5 billion sukuk issued by developer Nakheel [NAKHD.UL] that matures in December tumbled on Wednesday to below 40 percent from over 70 percent before the remarks, as investors associated less risk with the issue.

Separately, two bankers familiar with the deal said on Wednesday the Tourism Development & Investment Co (TDIC), based in the United Arab Emirates’ Abu Dhabi, is set to launch a benchmark issue of between $500 million to $1 billion.

The developer of projects including spin-offs of the Louvre and Guggenheim museums in the UAE capital, returns to the bond market after selling $1 billion of conventional bonds in June.

HSBC HSBC.L, Abu Dhabi Commercial Bank ADCB.AD and Standard Chartered STAN.L have been mandated, they said. Deutsche Bank DBKGn.DE, HSBC HSBA.L and BNP Paribas BNPP.PA were lead arrangers for the issue of IDB. (Click on [ID:nISLAMIC] for more Islamic finance stories and ISLAMIC for a speed guide) (Reporting by Frederik Richter, John Irish and Stanley Carvalho; Editing by Chris Pizzey)

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