UAE’s debut Islamic treasury bonds attracts bids worth Dhs8.3bn

The T-Sukuk auction will be followed by a listing on Nasdaq Dubai to promote secondary market trading along with primary dealers

by Kudakwashe Muzoriwa

May 11, 2023

The UAE’s debut auction of dirham-denominated Islamic treasury sukuk (T-Sukuk) was oversubscribed by 7.6 times and attracted bids totalling $2.26bn (Dhs8.3bn).

The strong demand was across both tranches, with a final allocation of Dhs550m for the two-year tranche and Dhs550m for the three-year tranche with a total issuance of Dhs1.1bn.

Sheikh Maktoum bin Mohammed, First Deputy Ruler of Dubai and Deputy Prime Minister and Minister of Finance said the successful launch of the T-Sukuk auction reflects the UAE’s prudent strategic investment policies and objectives, as the country continues to solidify its position as a global investment destination.

The T-Sukuk auction will be followed by a listing on Nasdaq Dubai to promote secondary market trading along with primary dealers. The programme will provide safe investment alternatives, further contributing to the development of the UAE’s investment environment.

“T-Sukuk issuances will offer high-quality Islamic assets at competitive prices due to the increase in the investor base, which reflects positively on the country’s economy and investment environment,” said Sheikh Maktoum bin Mohammed.

The Islamic Treasury Sukuk auction, which was launched by @MOFUAE in cooperation with the UAE Central Bank achieved record success, as bids worth AED 8.3 billion were received with an oversubscription of 7.6x and the total value of the auction reaching AED 1.1 billion.

The… pic.twitter.com/vHYV5vEQLH

— Maktoum Bin Mohammed (@MaktoumMohammed) May 10, 2023

The lowest bid for the two-year tenor was at 3.90 per cent, with the weighted average bids at 3.96 per cent and the final uniform coupon rate fixed at 3.97 per cent.

The lowest bid for the three-year tenor was at 3.62 per cent, with the weighted average bids at 3.66 per cent and the final uniform coupon rate fixed at 3.70 per cent.

The Ministry of Finance, which is the issuer of the debt sale, said the T-Sukuk will first be issued in two, three and five-year tranches, followed by a 10-year tenure sukuk at a later date. The finance ministry said the T-Sukuk is dirham-denominated to develop the local bonds debt market and support the mid-term yield curve.

The ministry and the Central Bank of the UAE worked with government entities and international financial bodies to ensure best practices were followed when structuring the T-Sukuk. ’’The UAE government’s launch of a dirham-denominated T-Sukuk, is an important step as it is a key enabler for the development of the nascent domestic Debt Capital Market and also supports funding diversification initiatives and the Islamic finance ecosystem in the UAE,” said Bashar Al Natoor, global head of Islamic finance at Fitch Ratings.

Abu Dhabi Islamic Bank, Dubai Islamic Bank, Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, Mashreq and Standard Chartered arranged the debt sale.

UAE dirham-denominated debt sale

Meanwhile, Emirates Islamic raised Dhs1bn from its inaugural dirham-denominated sukuk issuance in February.

The Shariah-compliant bank’s sukuk sale followed the creation of the Ministry of Finance’s medium-term dirham yield curve and came on the heels of Emirate NBD’s Dhs1bn bond sale in January.

Al Natoor said the T-Sukuk issuance is expected to help build the domestic yield curve and provide a pricing reference for dirham-denominated bonds, sukuk and loan products.

“For domestic, regional and international investors, the availability of dirham-denominated sukuk and bonds would help expand their investment options. It could also allow investors to access smaller-sized or lower-rated domestic issuers unable to issue debt in the international market,” he said.

The UAE made its debt capital markets debut in October 2021 to raise $4bn. The UAE had never issued bonds at the federal level, but the country’s seven emirates had done it, most notably Abu Dhabi and Dubai.

The bond package, denominated in US dollars, included conventional 10-year and 20-year tranches and 40-year dual-listed Formosa bonds, the ministry said at the time.