DUBAI (The Thursday Times) — Dubai Islamic Bank (DIB), the largest Islamic bank in the UAE, has successfully issued a $500 million Additional Tier 1 (AT1) sukuk with a competitive profit rate of 5.25% per annum. This milestone issuance, aligned with Basel III capital requirements, is poised to enhance the bank’s capital adequacy ratio and optimise its balance sheet, further cementing DIB’s reputation for strong financial stability and robust credit fundamentals.
Investor confidence
The transaction, executed intraday, attracted significant interest from a broad spectrum of investors, including banks, private banks, and fund managers across Europe, Asia, and the Middle East. Initially, DIB set the profit rate at 5.75%. However, overwhelming investor demand allowed the bank to tighten the pricing to 5.25%, marking a notable achievement in the international capital markets.
This tightened profit rate demonstrates the high level of confidence that investors place in DIB’s creditworthiness, financial health, and long-term growth strategies. Notably, the sukuk was priced with a reset spread of 133.4 basis points (bps) over the US Treasury rate, making it the lowest spread achieved for an AT1 instrument globally since the 2009 financial crisis.
Market significance
Dr Adnan Chilwan, Group CEO of Dubai Islamic Bank, expressed his satisfaction with the successful transaction, stating:
“We are very pleased with this successful execution in the international capital markets. The transaction represents the lowest yield achieved by an emerging market bank since April 2022. It reflects the strong confidence placed by both international and regional investors in DIB’s strategy, credit story, and overall financial health.”
Dr Chilwan further emphasised the importance of the broad investor base that the UAE commands, and he acknowledged the continuous support of both loyal and new investors, who have consistently shown their confidence in the bank’s capabilities.
Strengthening DIB’s capital position
The proceeds from the sukuk issuance will be used to bolster DIB’s Tier 1 capital base. This move will support the bank’s lending activities and fuel its future growth strategies. Enhancing the bank’s capital adequacy ratio is critical to maintaining financial resilience in a competitive banking sector, particularly in light of global economic fluctuations and regulatory changes.
By issuing this AT1 sukuk, DIB aligns itself with Basel III requirements, which seek to ensure that financial institutions maintain adequate capital reserves to mitigate risks. Basel III compliance is a crucial factor for banks globally, as it demonstrates a commitment to financial prudence, risk management, and sustainable growth.
Sukuk listed in Dubai—and Dublin
The sukuk will be dual-listed on Euronext Dublin and NASDAQ Dubai, ensuring wide visibility and liquidity in the global capital markets. This strategic listing is expected to further diversify DIB’s funding sources, providing the bank with more avenues to maintain a strong capital position and continue offering competitive financial services to its diverse customer base.
Market confidence
This successful sukuk issuance not only underscores the strength of Dubai Islamic Bank’s credit story but also highlights the strong appetite among international and regional investors for Sharia-compliant financial products. Islamic finance continues to grow in prominence, offering ethical and profitable investment opportunities for a global audience.
The tightening of the profit rate from 5.75% to 5.25% is indicative of robust market demand and investor trust in DIB’s solid financial foundation. It is particularly significant in the context of the current economic environment, where emerging market banks often face challenges in securing favourable terms for capital market transactions. The sukuk’s success reinforces Dubai’s status as a global financial hub and a leading centre for Islamic finance.∎
