UAE to issue Dh1.1 billion treasury sukuk

T-sukuk will be issued in two, three and five-year tenures, with a 10-year sukuk at a later date

The UAE raised Dh1.1 billion from the sale of treasury bonds last month. Silvia Razgova / The National

The UAE is issuing a dirham-denominated treasury sukuk worth Dh1.1 billion ($299 million) as it diversifies its funding resources and supports the growth of the Islamic economy.

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 Ministry of Finance said on Wednesday.

“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 Minister of State for Financial Affairs Mohamed Al Hussaini.

“The T-Sukuk are sharia-compliant financial certificates, and they will be traded to reflect the local return on investment, support economic diversification and financial inclusion, as well as contribute to achieving comprehensive and sustainable economic and social development goals.”

Launching treasury sukuk in local currency will contribute to building a local currency bond market, diversifying financing resources, boosting the local financial and banking sector, as well as providing safe investment alternatives for local and foreign investors, Mr Al Hussaini added.

Last month, the UAE, Arab world's second-largest economy, raised Dh1.1 billion from the sale of treasury bonds.

The dual-tranche deal attracted strong investor demand through six primary dealers. The two and three-year tranches of Dh550 million each received bids worth Dh5.51 billion, the Ministry of Finance said at the time.

The latest move will enhance the competitiveness of the local financial markets and enable market participants in the UAE to “maintain a single, transparent, diversified and sustainable liquidity pool in dirhams”, said Khaled Balama, Governor of the Central Bank of the UAE.

“The issuance of Islamic treasury sukuk comes within the framework of the UAE's commitment to developing capital market activities and consolidating its position as a global financial hub,” he said.

“This issuance reaffirms the strength and stability of the financial system and the confidence of local and international investors in the UAE's ability to develop the financial sector in accordance with monetary policies and strategic plans.”

Abu Dhabi Islamic Bank, Dubai Islamic Bank, Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, Mashreq and Standard Chartered are among banks arranging the latest deal.

The ministry and the Central Bank worked with government entities and international financial bodies to ensure best practices were followed when structuring the T-Sukuk, the statement said.

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

The UAE government’s planned issuance “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.

“The T-sukuk would give Islamic banks and conventional banks an option to invest their liquidity, and it could also help open the way for corporates and financial institutions to issue dirham-denominated bonds and sukuk.

“This step is expected to help build the domestic yield curve and provide a pricing reference for dirham-denominated bonds, sukuk and loan products.”

It will also expand investment options for domestic, regional and international investors, he added.

“It could also allow investors to access smaller-sized or lower-rated domestic issuers unable to issue debt in the international market,” he said. “Investors would also benefit from the UAE dirham’s peg to the US dollar, with no additional currency risk exposure.”

In 2021, the UAE raised $4 billion through the issuance of multi-tranche sovereign bonds, the first time it issued bonds at the federal level.

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.