Emirates Islamic Successfully Closes UAE’s First Local Currency AED1bn (AED272.3m) Sukuk as Dirham-denominated Debt Papers Flourish Among Bank Issuers

Banks in the UAE seem to be turning to raising funds from issuing domestic debt instruments denominated in dirhams, as demand for local currency debt papers increase.

In the last few weeks Emirates NBD has been leading the way, successfully launching an AED1 billion (AED272.3 million) conventional bond on 11th January 2023, followed by a AED1 billion (AED272.3 million) Sukuk issued by its Islamic banking subsidiary, Emirates Islamic on 9th February 2023. Both transactions were the first of their kind in the UAE market and both attracted robust demand from local investors.

The dirham-denominated bond/Sukuk issuances, according to Emirates NBD, underscore “the bank’s commitment to supporting the UAE Ministry of Finance’s efforts to develop the AED bond/Sukuk market. The Group’s bond sale will support the further development of a medium-term bond yield curve and facilitate access to financing for UAE corporations.”

Both the AED1 billion bond and the AED1 billion Sukuk have a tenor of three years each, maturing in January and February 2026 respectively.  The bond offering saw strong demand with the order book peaking at over AED1.65 billion, allowing Emirates NBD to tighten price to a spread of 83 basis points (bps) over UAE Government Treasuries. Regional investors contributed 72% of the orderbook while international investors accounted for 28%.

In contrast, the AED1 billion Sukuk carries a 5.05% profit rate, at a spread of 67 bps over UAE Government Treasuries, attracting even greater investor demand for the Sharia’a-compliant certificates. Emirates NBD Capital was sole global coordinator of the Sukuk transaction, with Dubai Islamic Bank, First Abu Dhabi Bank and Standard Chartered Bank mandated as joint lead managers and joint bookrunners.

The three-year issuance witnessed robust demand for local currency issuances and was oversubscribed 2.5 times. The strong order book, which exceeded AED2.5 billion dirhams, allowed the bank to tighten the profit rate and the spread.

The Group’s Sukuk sale will expand financing options for UAE corporations with Sharia’a-compliant needs while enhancing the development of the local Islamic capital market.

According to Salah Amin, Chief Executive Officer of Emirates Islamic, “the Sukuk sale demonstrates Emirates Islamic’s commitment to deepening the liquidity of the local currency Sukuk market following the creation of the Ministry of Finance’s medium-term dirham yield curve. Emirates Islamic’s benchmark dirham Sukuk further underscores the dirham bond market’s role as a significant and competitively priced source of funding for corporates. The robust demand is also a strong vote of confidence from global Sharia’a-compliant investors and demonstrates the strong appetite for dirham denominated fixed income products and services. Emirates Islamic is proud to play an important role in reinforcing the UAE’s position as the financial center of the region and supporting government initiatives.”

The success of the dirham bond offering, says Mohammad Kamran Wajid, Deputy CEO of Emirates Islamic, paved the way for the Bank to tap the market for an attractively priced dirham Sukuk.

“The strong demand for the Sukuk, he added, “reflects the healthy appetite among Sharia’a-compliant investors for a dirham-denominated issue. At the same time, the Sukuk transaction’s strict adherence to the latest Sharia’a-compliant standards has allowed us to tap a deep pool of global liquidity and attract a wide range of investors. This milestone Sukuk is fully aligned to the UAE Government’s objective of developing the local debt market and the ‘Dubai: Capital of Islamic Economy Initiative’.”

In January 2023, Emirates Islamic reported its highest ever net profit of AED1.24 billion (US$340 million) in 2022, marking a significant 51% increase compared to 2021. In 2022, total assets increased by 15% to AED75 billion (US$20.42 billion), customer financing increased by 14% to AED 48.4 billion (US$13.18 billion), customer deposits increased by 19% to AED56.3 billion (US$15.33 billion), with Current Account and Savings Account balances at 74% of total deposits.

The 2022 performance, underpinned by a 36% increase in Operating Profit, coupled with an improvement in cost of risk compared to 2021; a strong capital position with Tier 1 ratio of 17.9% and Capital adequacy ratio of 19%; and Headline Financing to Deposit ratio at 86%, reflecting continued healthy liquidity in the UAE, recently prompted Fitch Ratings to affirm Emirates Islamic’s ‘A+’ Long-Term Rating with a Stable Outlook, Short-Term Rating of ‘F1’ and upgraded the Bank’s Viability Rating.

“As the Islamic bank of choice in the UAE, we continue to play a pivotal role in the advancement of the Islamic banking sector in the UAE and remain deeply committed to supporting the vision to make Dubai the global capital of the Islamic economy,” stressed Salah Mohammed Amin, Chief Executive Officer of Emirates Islamic.

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