ADIB Returns to the International Market with its Latest Benchmark Basel III Compliant US$750m Additional Tier-one (AT1) Perpetual Mudarabah Sukuk

Abu Dhabi Islamic Bank (ADIB), one of the largest Islamic financial institutions in the UAE and the Gulf Cooperation Council (GCC) region, successfully returned to the international market in July 2023 with a benchmark US$750 million Additional Tier-one (AT1) Perpetual Mudarabah Sukuk – the first such dollar denominated AT1 offering in the market issued since March 2023, and compliant with the Basel III regulatory framework issued by the Central Bank of the UAE.

ADIB, which is rated A2 by Moody’s and A+ by Fitch, in each case with a stable outlook, priced the perpetual non-call, five and half-year Sukuk at a profit rate of 7.25% per annum payable semi-annually. The Sukuk certificates will be listed and traded on the International Securities Market of the London Stock Exchange.

This latest US$750 million Sukuk was issued through ADIB Capital Invest 1 Ltd., a special purpose company incorporated in Cayman Islands and wholly owned by ADIB. The bank had mandated HSBC and Standard Chartered Bank to act as joint global coordinators and structuring agents for the Sukuk offering and arrange a series of investor meetings with accounts in the UK, Europe, the Middle East, Asia and Offshore US investors. ADIB, Citi, Emirates NBD Capital, First Abu Dhabi Bank, and J.P. Morgan also acted as joint lead managers and joint bookrunners​ to the transaction.

According to ADIB, the issuance was met with exceptional demand, attracting interest from over 240 global and regional investors with the final order book exceeding US$7 billion and more than 9 times over-subscribed. As such, the final pricing was 62.5 basis points (bps) tighter than the initial pricing thoughts. Additionally, the reset spread was 306 bps over US treasury yields, which is 121 bps lower than the previous AT1 Sukuk issued by ADIB in 2018.

Nasser Al Awadhi, ADIB Group Chief Executive Officer stressed at the closure of the offering: “We are delighted to receive exceptional interest from a broad range of domestic, regional and international investors, with ADIB’s recent achievement of raising US$750 million Tier-one Perpetual Sukuk. Demand for this issuance exceeded the initial offer by more than nine times, highlighting the tremendous demand and confidence from global investors in ADIB’s asset quality. We are also pleased to see this strong international demand continue as the final pricing tightened. The Sukuk issuance will maintain the Group’s optimized capital structure and its strong CET1 position. The overall success of this raise can be attributed to ADIB’s clear ESG framework and our strong track record of both growing market share and delivering sustainable returns.”

Demand for the issuance was driven by orders across three regions, with final allocations of 83% to investors in MENA, 13% to investors in Europe and 4% to investors in Asia. By investor type, private banks comprised 70% of the allocations, Asset and Fund managers 16%, commercial banks 10% and others 4%.

The Sukuk issuance, added ADIB, will maintain the Group’s optimized capital structure and its strong CET1 position. ADIB’s tier-one perpetual Sukuk was structured to comply with the internationally agreed Basel III regulatory framework, which includes detailed criteria for capital and liquidity. “The successful issuance reaffirms the strong local, regional and international investor confidence in ADIB’s asset quality, capital position and continued performance,” said ADIB.

Prior to this issuance, ADIB issued a similar US$750 million non-call AT1 Mudarabah Sukuk in 2018 with a 5-year tenor and priced at a profit rate of 7.125%.

The Perpetual Tier I Sukuk was in fact pioneered way back in November 2012 by ADIB when it launched a US$1 billion Perpetual Non-call 6-year Sukuk issuance at a profit rate of 6.375 per cent per annum, which the Bank stressed was one of the lowest rates achieved for any perpetual instrument by a global bank. ADIB at the time claimed the offering as “the world’s first Shariah-compliant hybrid Tier 1 Sukuk and the region’s first publicly issued Perpetual and Tier 1 instrument.” The issuance was oversubscribed by over fifteen times.

Earlier this year, ADIB reported net profit after Zakat and Tax of AED3,619 million (US$985.32 million) in 2022 compared with AED2,330 million (US$634.38 million) in 2021. Total assets similarly increased from AED136. 9 billion in 2021 (US$37.27 million) to AED168.5 billion (US$45.88 million) in 2022; customer financing increased from AED88.3 billion (US$24.04 million) in 2021 to AED107.7 billion (US$29.32 million) in 2022; and customer deposits from AED109.6 billion (US$29.84 million)  to AED138.1 billion (US$37.60 million) for the same period on the back of “robust revenues growth, while maintaining a disciplined approach to cost and risk management.”

The bank paid an earnings per share of AED0.91 for 2022, and achieved a return on average equity and return on average assets of 21.4% and 2.37% for 2022 respectively.

The importance of ADIB in the UAE and GCC banking sector, is the onboarding last month by the UAE Ministry of Finance of eight banks led by Abu Dhabi Islamic Bank and including Dubai Islamic Bank, Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, Mashreq and Standard Chartered, as Primary Dealers to participate in the dirham-denominated Islamic Treasury Sukuk (T-Sukuk) primary market auctions and to actively develop a secondary market.

The T-Sukuk, according to the Ministry, are Sharia’a-compliant financial certificates and 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.

The launching of the T-Sukuk incorporates a series of issuances, in order to attract a new category of investors and support the sustainability of economic growth. The issuance of T-Sukuk, is also aimed at enhancing the UAE’s economic competitiveness by providing high-quality Islamic assets at competitive prices. This will support the Central Bank of the UAE in managing liquidity within the banking sector and boosts the size of financial investments, which will reflect positively on the country’s economy, investment environment, per capita income and gross national income.

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