Dubai Islamic Bank (DIB), one of the largest banks in the UAE in terms of assets under management following its merger with Noor Bank last year, successfully priced its second Sukuk issuance in the international market this year with a landmark US$1 billion Sukuk with a 5-year tenor on 16 June 2021.
According to DIB, rated ‘A3’ by Moody’s Investors Service and ‘A’ by Fitch Ratings, the transaction represented “the lowest ever pricing achieved by DIB on any of their previous Sukuk issuances. Despite the heavy Sukuk supply witnessed in the market over the last week, this landmark success is a testament to the Bank’s strong credit profile and standing with international and regional investors.”
DIB had mandated Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, KFH Capital, 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 the Middle East, UK, Europe, Asia and Offshore US accounts.
The Sukuk was issued through DIB Sukuk Ltd., a special purpose vehicle on behalf of DIB, the Obligor, under its US$7.5 billion Trust Certificate Issuance Programme, the deal was priced intraday after completing investor calls, which were attended by several local, regional and international investors. The transaction successfully closed on 16 June priced at a final profit rate of 1.9590% per annum.
This latest Sukuk, according to Dr Adnan Chilwan, DIB Group Chief Executive Officer, was three times oversubscribed with an orderbook that peaked at US$3 billion. This he added “clearly highlighted the investor community’s reaffirmation of their commitment to UAE and DIB in particular.
“We are very pleased with the outcome of our latest transaction. Despite the heavy issuance window, and a clutter of new issuances in the market, DIB once again executed a very successful US$1bn Sukuk. In 2021, both our AT1 capital and now senior issuance have been issued at record low levels which is a clear testament to the confidence global markets place in the bank’s robust fundamentals, as well as investor comfort in the Dubai and UAE economy.”
DIB, the largest Islamic bank in the UAE in terms of assets and a prolific issuer of Sukuk, previously issued a benchmark US$500 million Perpetual Non-Call 5.5yrs Additional Tier 1 Sukuk on 14 April 2021. That Sukuk, also rated ‘A3’ by Moody’s Investors Service and ‘A’ by Fitch Ratings, in comparison was priced at a profit rate of 3.375% per annum.
Dr Chilwan attributes the lowest ever pricing for the two transactions achieved by a GCC bank (both conventional and Islamic) to the bank’s “strong credit profile and standing with international and regional investors. This despite the volatility witnessed in credit markets during the past month on account of US Treasury rates.”
The Sukuk certificates of both issuances are listed on Nasdaq Dubai and on Euronext Dublin. According to Nasdaq Dubai, DIB is the leading UAE-based Sukuk issuer by value on the Bourse with a total value of US$7.3 billion including this latest US$1 billion listing. This latest listing, says Nasdaq Dubai “reinforces Dubai’s position as one of the largest centres for Sukuk listings globally, attracting both local and international issuers, with a total listed value now standing at US$77.6 billion.”
DIB is a prolific Sukuk issuer. Its previous global issuance was in June 2020 when it raised US$1.3 billion through two transactions – a benchmark 5-year US$1 billion Sukuk priced at a profit rate of 2.95% per annum which is equivalent to 245 bps points over the equivalent tenor Mid Swap (MS) rate – and a subsequent US$300 million tap issuance.
Prior to these two Sukuk, DIB last issued a benchmark 5-Year US$750 million Sukuk in November 2019, and a US$750 million Additional Tier 1 (AT1) Perpetual Non-Call Sukuk in January 2019. The November 2019 Sukuk offering was priced at a profit rate of 2.95% per annum, which is equivalent to 140 bps over the 5-year MS Rate), while the January 2019 Perpetual issuance at a profit rate of 6.25% per annum, which is equivalent to 366.4 bps over the implied 6-year US Treasury yield.
The proceeds from the Sukuk issuance according to the Bank are earmarked to support its customers and the business community as economies start to overcome challenging market conditions due to the COVID-19 pandemic.
DIB reported encouraging Q1/21 results despite the continuing difficult international economic circumstances due to the ongoing impact of the pandemic and the slow recovery towards pre-COVID market conditions.
According to Dr Chilwan, “the signature strength of the balance sheet with 6% year on year expansion demonstrates the bank’s resilience in challenging conditions as well as the effective execution of its strategy to capture organic growth opportunities during economic uncertainties.” Total income reached AED2.8 billion; profit before impairments rose to AED1,614 million compared to AED1,592 million for Q1/20; and DIB Group net profit of AED853 million, whilst lower YoY, excludes the one-off gain in Q1/20 of AED 1 billion.
Dr Chilwan however stressed that “as significant headwinds remain in the current environment, we continue to approach the year with extreme prudence, with focus on low risk sectors and those showing consistent signs of recovery as the market improves. The bank has continued to build provisions during Q1/21 amounting to nearly twice the value for the same period last year on a normalized basis. But, business momentum remains positive with profit before impairments increasing by 1%. As a result, we have achieved a substantial QoQ net profit increase when compared to Q4 2020, and a modest QoQ net profit decrease when compared to same period last year despite the one-off gain in Q1 2020.”