First Abu Dhabi Bank (FAB) Kicks off International Sukuk Issuance with a Benchmark US$500m RegS Offering in January 2023 followed by a US$600m Bond, Raising an Aggregate US$1.1bn

Each January, there is a scramble as to which institution will be the first to issue a Sukuk in the international market in that respective year. Usually, it is a race between the top banks in the UAE, whether Dubai Islamic Bank, or Abu Dhabi Islamic Bank.

In January 2023, it is the turn of First Abu Dhabi Bank (FAB), the UAE’s largest bank, but with an Emirati panache. FAB issued not one but two benchmark international issuances within a period of 10 days in January 2023, raising an aggregate US$1.1 billion.

On 9th January, FAB successfully issued a 5-year US$500 million RegS Sukuk issuance, which was the first Sukuk transaction in the international market in 2023, followed by a 5.25-year US$600m conventional bond offering on 19 January 2023, the first US dollar conventional bond issuance from a MENA FI issuer. FAB has already become the only regional bank to have successfully accessed the debt capital markets twice this year.

The 5-year Sukuk was successfully priced on 9th January 2023 at 90 basis points (bps) over the U.S. Treasury Rate which is equivalent to a fixed profit rate of 4.581% per annum payable semi-annually in arrears. According to FAB, based on its funding curve, “the Sukuk pricing is circa 10bps inside fair value for a new 5-year bond and at zero new issue premium for a new 5-year Sukuk. This is an exceptional result given the market volatility witnessed in 2022 and possible only due to the bank’s sound credit profile and standing with international investors.”

In contrast, the US$600 million bond was priced at US Treasury (UST) +105bps which resulted in an all-in yield of 4.514%, on 19 January 2023, which says FAB also achieved the lowest spread (UST +105bps) by any bank globally for a fixed US$5-year conventional bond in 2023. Pricing similarly represented a deeply negative new issue premium which says FAB “is a phenomenal achievement when compared to global banks (including G-SIBs) paying an average 10bps new issue premium on their issuances.”

Nevertheless, the Sukuk, which matures in January 2028, was issued by FAB Sukuk Company Limited, a special purpose vehicle incorporated in the Cayman Islands, on behalf of the obligor, FAB, under its US$5 billion Trust Certificate Issuance Programme arranged by FAB and Standard Chartered Bank on 5 January 2023.

FAB had mandated its own capital markets division and Standard Chartered Bank to arrange a series of investors meetings and calls for the issuance and manage the bookrunning exercise. They were joined by Dubai Islamic Bank, Emirates NBD Bank, The Islamic Corporation for the Development of the Private Sector, KFH Capital Investment Company, and Sharjah Islamic Bank as distributors.

The asset pool comprised 57.34% of Tangible Assets and 42.66% of Intangible Assets.

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.

This is the third consecutive annual benchmark Sukuk issued by FAB. It issued similar US$500 million Sukuk in January 2021 and 2022.

Not surprisingly, Rula Al Qadi, Group Treasurer at FAB, was delighted with the result of the Bank’s first public Sukuk issuance in 2023. “While this issuance is catered predominantly to our Islamic investors, it also refreshes our pricing benchmark for our private placements and issuances in other markets. I would like to thank our investors and partners for the trust placed in FAB which helped us price inside our conventional curve – a fantastic result especially after a very tumultuous 2022 for fixed income. Our wholesale funding will be driven by the diversity of investor base and cost-efficient markets and the Sukuk market is especially important for us in this regard,” she added.

Rula Al Qadi was equally happy with the bond issuance having achieved a deeply negative new issue premium, especially when taking into account the intra-day movement in USTs. “This success reinforces FAB’s position as a “flight-to-quality” for global investors. We have now updated our Senior curve in both Sukuk and Bond format this year, which will enable us to deploy a more efficient pricing strategy across our balance sheet,” she explained.

Demand for both issuances was robust with the order book well oversubscribed with orders from the GCC, Europe, UK, Asia and Offshore US Accounts. The Sukuk certificates are rated AA- by Fitch Ratings and Aa3 by Moody’s Investors Service and are listed on the main market of the London Stock Exchange.

FAB Group recently 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.

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