Dubai Islamic Bank (DIB), one of the most prolific and regular issuers of Sukuk by a financial institution and the largest Islamic bank in the UAE in terms of assets, successfully priced its first issuance of 2022 in early February – a benchmark US$750 million Senior Unsecured 5-year Sukuk issued through its Cayman Island incorporated special purpose vehicle, DIB Sukuk Limited.
The issuance is the latest offering under DIB Sukuk Limited’s US$7.5 billion Trust Certificate Issuance Programme established in June 2021 and amended in February 2022.
Despite investor concerns around the global interest rate environment, DIB, which is rated ‘A3’ by Moody’s Investor Service and ‘A’ by Fitch Ratings, priced its Sukuk issuance with a profit rate of 2.74% per annum and a spread of 95 basis points (bps) over 5-Year US Treasuries. DIB had earlier set the initial price guidance of around 120bps for the 5-year offering.
According to DIB, pricing was set “with no new issue premium which is testament to the bank’s strong credit profile and sound business strategy. The Sukuk was priced after completing a comprehensive marketing exercise where DIB updated investors on its positive financial performance especially during the last year.”
Dr Adnan Chilwan, Group Chief Executive Officer, DIB, stressed that “the success of this transaction highlights the confidence investors placed on DIB and reaffirms their commitment to the UAE. Final pricing at 95 bps over the 5-Year US Treasuries represents the lowest-ever credit spread on any of our fixed-rate Senior Sukuk issuances – an achievement all the more noteworthy given the current volatile state of markets. We are very pleased with the outcome of our issuance which is expected to set a precedent for other Islamic banks to follow”.
DIB had earlier mandated Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, KFH Capital, HSBC, Sharjah Islamic Bank, Standard Chartered Bank and The Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IsDB) Group, to act as Joint Lead Managers and Bookrunners on the transaction, and to arrange a series of investor calls with accounts in London, the EU, the GCC, Asia and Offshore US.
Investor demand, according to DIB, was strong with the issuance more than 2.5 times oversubscribed and attracting an orderbook in excess of US$1.7 billion.
The transaction represents the first Sukuk offering from the UAE in 2022, paving the way for other issuers to access the international Sukuk market. Last year DIB issued two Sukuk raising a total of US$1.5 billion in the process. They included a US$500 million Perpetual Non-Call 5.5yrs Additional Tier 1 Sukuk in April 2021, priced at a profit rate of 3.375% per annum. Despite the record low yield, the Sukuk was 5.6 times oversubscribed with an orderbook that peaked at US$2.8 billion.
The second issuance in June 2021 similarly was a Senior Unsecured US$1 billion Sukuk with a 5-year tenor, priced at a final profit rate of 1.9590% per annum. That issuance was three times oversubscribed with an orderbook that peaked at US$3 billion.
The proceeds from this latest offering like the previous two Sukuk issuances in 2021 according to the Bank is earmarked to support its customers and the business community as economies start to overcome challenging market conditions due to the coronavirus pandemic.
The Sukuk certificates from the US$750 million transaction are listed on Euronext Dublin and NASDAQ Dubai for trading.
Despite a decline in total income, primarily due to the on-going lower rate environment and large corporate repayments during the year, DIB Group net profits saw a significant increase of 39% year-on-year (YoY) to reach AED4,406 million in 2021 compared with AED3,160 million in 2020.
Other metrics that point to a difficult year for banks in general, due to the ongoing impact of the pandemic, include a slight decline in total assets from AED 289,556 million in 2020 to AED 279,082 million in 2021. Customer deposits remained stable at AED205.8 billion with CASA increasing by 4.4% to over AED90 billion, now forming 44% of the customer deposit base. Total equity now stands at AED41.5 billion.
On the plus side, DIB reported a further reduction in operating expense, down by 7% YoY from AED2,728 million to AED2,529 million “as efficiency building continues.” Prudent risk management, says the bank, led to significantly lower impairment losses of AED 2,448 million, lower by 46% YoY.
Similarly, the key ratios remained robust with liquidity remain healthy with a finance to deposit ratio of 91% and LCR of 136% (+700bps YoY); continued healthy improvements on ROA now at 1.5% (+30bps YoY) and ROE at 11.8% (+140bps YoY); and capitalization levels robust with CET1 at 12.4% and CAR at 17.1%, both well above the minimum regulatory requirement.
“Amidst the headwinds that the global economies are still facing,’ maintains Group CEO Dr Adnan Chilwan, “DIB has remained resilient with a remarkable 39% YoY growth in profitability. This solid underlying performance demonstrates the robustness of our strategy which allows us to deliver results irrespective of the prevailing economic conditions and climate. We have built a leaner, agile and overall efficient organization that is ready to capitalize on any opportunity with maximum insulation from environmental hurdles. This has allowed us to generate higher profitability despite a low-rate environment and large repayments that kept dampened the earning assets growth.”
The bank, he added, is committed towards a more sustainable future as it enters a decade of change to support the UAE’s ambitions towards a low-carbon economy. DIB’s ESG roadmap is set to unlock further efficiencies within the business as it integrates sustainability and climate risk into its operating models with the aim to ensure that the bank is safeguarded against the biggest environmental risks that are impacting the global economies.
“We enter the year with a new 5-year strategy that will propel the bank to strengthen and grow the business over the period. Building on the progress that we have made, DIB will transition into a more sustainable business model and create further capacity to generate stronger returns for our shareholders whilst simultaneously ensuring a superior banking experience for all our customers,” he added.