First Abu Dhabi Bank Revives Green Sukuk Issuance with Maiden AED1.3bn (US$350m) Offering in July 2023
Green Sukuk issuance continues to gain traction in the international market albeit the volume issued thus far falls way short of with the level of issuance in the global Green Finance and Bond market. In 2022, a record US$2 trillion of green, social and sustainable bonds were issued globally, according to the European Commission. The Commission expects this figure to rise by 50% in 2023, albeit this remains about 15% of the total global debt capital market.
In contrast, total Green and Sustainable Sukuk, according to Fitch Ratings, reached a mere US$15 billion in 2021. This figure is estimated to have increased to US$19 billion in 2022, led by sovereign, multilaterals and corporate issuers in Indonesia, Malaysia, the GCC states, Türkiye and Pakistan. Sukuk remains the preferred format for ESG-linked debt in core Islamic finance markets.
The latest foray into the Green Sukuk market comes from First Abu Dhabi Bank (FAB), the UAE’s largest bank, which successfully closed its maiden AED1.3 billion (US$350 million) denominated Green Sukuk issuance on 20 July 2023.
First Abu Dhabi Bank mandated Emirates NBD Bank, First Abu Dhabi Bank, HSBC Bank, Sharjah Islamic Bank and Standard Chartered Bank to act as joint lead managers, bookrunners and green structuring agent on the Sukuk issuance.
The RegS AED1.3 billion Green Sukuk, which has a tenor of 3 years maturing in July 2026, was priced on 19th July at a profit rate of 4.93% per annum, which according to FAB is the lowest-ever pricing achieved by a UAE financial institution in the AED market. The transaction also marks FAB’s first UAE dirham-denominated public issuance.
The Sukuk was issued through FAB Sukuk Company Limited, a special purpose legal entity under UAE law, under its AED5 billion (US$1.36 billion) on behalf of its Obligor First Abu Dhabi Bank.
In addition, according to FAB, the inaugural AED Green Sukuk issuance achieved multiple milestones including:
- The first-ever AED denominated Green Sukuk/bond issuance.
- The largest ever AED Sukuk and the largest AED offering in 2023.
- The largest-ever outstanding single-tranche AED issuance.
- Lowest-ever pricing achieved by a UAE Financial Institution in the AED market.
Hana Al Rostamani, Group Chief Executive Officer of FAB, commented: “FAB’s inaugural Green Sukuk, and the UAE’s first AED-denominated Green issuance, represents a landmark achievement for both the Green Finance and Islamic Finance sectors in the UAE, as well as for local bonds. As a leading force for investment banking, FAB fully supports the establishment of a thriving dirham bond market, serving to elevate Abu Dhabi’s increasing role as a centre for global finance. The success of this issuance demonstrates significant progress in expanding FAB’s offering for clients, and towards achieving important national priorities on sustainability and economic diversification. FAB’s milestone issuance showcases the potential of both Green and Islamic finance and strongly connects to the UAE’s climate objectives, especially in a year when the country will host COP28.”
According to the financing documents of the issuance, the asset pool comprises 55.84% of Tangible assets and 44.16% of Intangible Assets on the issue date. The Sukuk certificates have been admitted for listing and trading on the London Stock Exchange’s main market at end July 2023.
The Sukuk Certificates have been assigned a AA rating by Fitch Ratings and Aa3 rating by Moody’s Investors Service.
FAB, which is owned by Mubadala Investment Company (37%), the Abu Dhabi ruling family (15.3%) and other UAE entities and individuals (31.6%), is a pacesetter in the GCC Sukuk and bond market with issuance forays into several overseas markets. It has pioneered Sukuk and bond issuances in the Malaysian ringgit, Formosa bond, Eurobond and US dollar markets.
Prior to this AED Sukuk issuance, FAB successfully issued a 5-year US$500 million RegS Sukuk issuance in January, which was the first Sukuk transaction in the international market in 2023. The 5-year Sukuk was successfully priced at 90 basis points over the U.S. Treasury Rate which is equivalent to a fixed profit rate of 4.581% per annum payable semi-annually in arrears. That was the third consecutive annual benchmark Sukuk issued by FAB. It issued similar US$500 million Sukuk in January 2021 and 2022.
The FAB Group earlier this year reported net profits of AED 13.4 billion for FY2022 – up 7% year-on-year; total assets of AED 1.1 trillion (US$302 billion) – up 11% year-on-year; total income of AED23.9 billion – up 10% year-on-year; loans, advances and Islamic financing of AED460 billion (US$125 billion) – up 12% year-on-year; and customer deposits of AED701 billion (US$191 billion) – up 14% year-on-year.