Dubai Islamic Bank raises $1bn from sustainable sukuk issuance

The 5.5-year Islamic bond was priced at a profit rate of 4.8% per annum and was three times oversubscribed

DIB's latest sustainable sukuk is the biggest by a Middle East financial institution in international capital markets since June 2021. Photo: DIB

Dubai Islamic Bank, the UAE’s biggest Sharia-compliant lender by assets, has raised $1 billion from its second sustainable sukuk as it continues to diversify its financing base.

The 5.5-year sukuk was priced at a profit rate of 4.8 per cent per annum, representing a spread of 102.4 basis points over five-year US Treasuries, DIB said on Monday.

A sukuk is an Islamic financial instrument that provides the same commercial equivalent to a conventional bond.

However, it is structured in a Sharia-compliant manner and represents proportionate undivided ownership in the underlying asset or investment.

The deal, which was three times oversubscribed, is the biggest by a Middle East financial institution in international capital markets since June 2021.

It also comes after DIB raised $750 million through the sale of its debut sustainable sukuk in November.

“The success of DIB’s inaugural sukuk in 2022 strongly reflected the market’s faith in the franchise and the reputation the bank enjoys in the local and international capital markets,” said group chief executive Adnan Chilwan.

“We hope the success of our offering will encourage other issuers from the UAE to follow suit in this format.”

Sustainable finance deals fund environment, social and governance-focused projects that contribute to sustainable development.

Sovereigns, government-related entities and corporates are increasingly looking at tapping into the sustainable finance market to pursue their social agenda and net-zero goals.

The global sustainable finance market was valued at $3.65 trillion in 2021 and is projected to hit $22.48 trillion by 2031, growing at a compound annual rate of more than 20 per cent between 2022 to 2031, the latest data from Allied Market Research shows.

Green bond and sukuk issuances from the GCC hit a record in 2022 at $8.5 billion from 15 deals, compared with $605 million from six deals in 2021, data from Bloomberg’s Capital Markets League Tables showed last month.

A “strong pipeline” of sustainable bonds is expected to come from the Middle East this year as the region continues to focus on the green economy, S&P Global Ratings said in a report last week.

In addition, about $25 trillion in potential additional capital is expected to be mobilised in the sustainable finance market by 2030, which would boost the industry by 2.5 per cent and save about 1.1 years in the financing of sustainable development goals, according to consultancy Strategy&.

The success of DIB’s inaugural sukuk in 2022 strongly reflected the market’s faith in the franchise and the reputation the bank enjoys in the local and international capital markets

Adnan Chilwan,
group chief executive of Dubai Islamic Bank

DIB's sukuk was “driven by our detailed and meticulously crafted balanced growth strategy, as well as the bank’s commitment towards the sustainability agenda of the UAE and the larger Net Zero by 2050 goal of the nation”, Mr Chilwan said.

The strategic initiative, announced in October 2021, aims to reduce carbon emissions by 2050 by investing Dh600 billion ($163.4 billion) in clean and renewable energy sources over the next three decades.

The sukuk was issued under DIB Sukuk Ltd and is listed on Euronext Dublin and Nasdaq Dubai.

Standard Chartered Bank was the sukuk's sole sustainability structurer while DIB, Emirates NBD Capital, First Abu Dhabi Bank, Mashreq, Sharjah Islamic Bank, Bank ABC, HSBC, KFH Capital and the Islamic Corporation for the Development of the Private Sector acted as joint lead managers and bookrunners on the transaction.

DIB posted a 25 per cent increase in net profit last year as revenue rose and impairment charges fell during the year, the lender said last month.