UAE to sell Dhs1.1bn dirham-denominated treasury sukuk

The UAE has launched domestic dirham-denominated Islamic treasury sukuk (T-Sukuk), with a benchmark auction size of $299m (Dhs1.1bn), as part of the country’s broader strategy to diversify its funding resources and supports the growth of the Islamic economy.

The Ministry of Finance, which is the issuer on 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 develop the mid-term yield curve.

“The Ministry of Finance co-operates with all its partners, foremostly the Central Bank of the UAE, to attract investments and deploy them in Islamic economy channels,” said Mohamed bin Hadi Al Hussaini, Minister of State for Financial Affairs.

Al Hussaini said issuing the T-Sukuk in local currency will contribute to building a local currency bond market, diversify financing resources, boost the local financial and banking sector while providing safe investment alternatives for local and foreign investors.

#UAE launches a dirham- denominated Islamic Treasury Sukuk (T-Sukuk), with a benchmark auction size of AED1.1 billion #WamNews https://t.co/O3QtaDDfch pic.twitter.com/S2sShNWxuM

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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. “This allows for further development of Islamic finance in the country and cements its position as an international Islamic economy hub,” the ministry of finance said in a statement.

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.

’’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.

Islamic finance analysts said the T-Sukuk offers UAE Islamic and conventional banks an option to invest their liquidity and it is expected to pave the way for corporates and financial institutions to issue dirham-denominated bonds and sukuk.

UAE dirham-denominated debt sale

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

Read: Dubai’s Emirates NBD successfully issues three-year Dhs1bn bond

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, which was denominated in US dollars, included conventional 10-year and 20-year tranches, as well as 40-year dual-listed Formosa bonds, the ministry said at the time.

Read: UAE’s Emirates Islamic issues dirham-denominated sukuk valued at Dhs1bn