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Qatari tanker Duhail crosses through the Suez Canal. On Wednesday, Qatar sold a $4-billion dollar-denominated Islamic bond issue, the largest ever.Reuters

Qatar sold the largest dollar-denominated Islamic bond ever seen on Wednesday, taking advantage of heavy interest in high-grade Gulf debt, which is being sought as a safe haven from the global financial crisis.

The world's top liquefied natural gas exporter priced a $4-billion (U.S.), two-tranche sukuk, attracting a massive order book of more than $24-billion. It was the Qatari government's first Islamic debt issue for nine years.

The five- and 10-year tranches of the sukuk were each $2 billion in size. Qatar was able to sell the debt very cheaply: the five-year tranche carried a yield of 2.099 per cent and the 10-year tranche sold at 3.241 per cent, lead arrangers said.

The wealthy Gulf state was benefitting from two trends. Because of high oil prices, solid economic growth and comfortable budget surpluses, the bond prices of countries in the region have risen strongly over recent months even as debt problems in Europe and the United States have worsened.

"The Qatari sovereign has a history of being a savvy issuer and appears to be taking advantage of the extraordinary spread compression we've seen in GCC (Gulf Cooperation Council) sukuk over the last six months," said Akber Khan, director for asset management at Al Rayan Investment in Doha.

The second trend is a hunger for sukuk among cash-rich Islamic investment funds from the Gulf and southeast Asia, which see relatively few attractive investments elsewhere in the world as global markets sag.

Since interest payments are prohibited by Islam, sukuk are often more complicated and expensive to arrange than conventional bonds. The Qatar sukuk uses an ijara or lease format, in which the issuer leases assets – believed to be state-owned buildings and land – from a special-purpose vehicle at a rate that allows investors to make a profit.

Islamic funds' buying has been so heavy, however, that most debt issues from the Gulf this year have been in the form of sukuk, which in many cases have been priced at lower yields than conventional bonds of the same credit rating.

The yields on both tranches of Qatar's sukuk were about 18 basis points cheaper than they would have been if the country had been selling a conventional bond, analysts said, basing their calculations on the current market prices of its previously issued debt .

Previously, the world's biggest dollar sukuk was a $3.52-billion issue by Dubai property developer Nakheel Properties, Thomson Reuters data showed. This was repaid in December 2009.

Qatar said it would use the proceeds of its issue for general government purposes. The tiny country is embarking on an intensive infrastructure building program, which includes a new airport, a seaport and roads, to prepare for its hosting of the 2022 soccer World Cup.

The country normally doesn't issue debt in small amounts: it printed a $5-billion, multi-tranche conventional bond last November, and before that a $7-billion bond in 2009. It had not issued a sovereign sukuk since 2003, when it priced $700-million of seven-year paper.

HSBC, Standard Chartered, Deutsche Bank and local Qatari lenders Barwa Bank and QInvest were book runners on the transaction.

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