UAE’s first auction of Islamic treasury bonds in 2023 oversubscribed 7.6 times

T-sukuk will be issued in two, three and five-year tenures, with a 10-year sukuk offered at a later date

The latest auction received strong demand through the eight primary bank dealers, the government said. Silvia Razgova / The National

The first auction of the UAE's dirham-denominated treasury sukuk for the year was oversubscribed by 7.6 times, receiving bids worth Dh8.3 billion ($2.26 billion), the Dubai Media Office said on Wednesday.

The move comes as part of the government's Sharia-compliant treasury bonds programme for this year. The value of the first auction stands at Dh1.1 billion, the media office said in a statement.

T-sukuk are Sharia-compliant financial certificates. The issuer of a sukuk essentially sells an investor group a certificate, and then uses the proceeds to purchase an asset that the investor group has direct partial ownership interest in, according to online financial encyclopaedia Investopedia.

The UAE, the Arab world's second-largest economy, in April issued a dirham-denominated treasury sukuk worth Dh1.1 billion as it diversifies its funding resources and supports the growth of the Islamic economy.

In March, the UAE raised Dh1.1 billion from the sale of treasury bonds.

The successful launch of the T-sukuk auction reflects the “UAE's prudent strategic investment policies and objectives, as the country continues to solidify its position as a global investment destination and one of the most competitive and advanced economies in the world, particularly in the Islamic economy sector”, said Sheikh Maktoum bin Mohammed, First Deputy Ruler of Dubai and Deputy Prime Minister and Minister of Finance.

“T-sukuk issuances will offer high-quality Islamic assets at competitive prices due to the increase in the investor base, which reflects positively on the country’s economy and investment environment.”

In the Islamic treasury bonds auction, the UAE government is represented by the Ministry of Finance as the issuer, in collaboration with the UAE Central Bank as the issuing and payment agent.

The latest auction received strong demand through the eight primary bank dealers, the statement said.

“Strong demand was witnessed for two-year and three-year dirham sukuk at Dh550 million each,” it said.

The statement added that the first auction would be followed by a series of auctions, in line with the proposed 2023 issuance plan.

The T-sukuk will first be issued in two, three and five-year tranches, followed by a 10-year tenure sukuk at a later date, the Ministry of Finance said last month.

The first T-sukuk auction will be followed by a listing on Nasdaq Dubai to promote secondary market trading along with primary dealers, the Dubai Media Office said.

“The T-sukuk programme was developed in uniform pricing (the Dutch Auction) for final bid acceptance of bids and final allocation amounts, regardless of the lower-priced bids received to ensure full transparency in accordance with global best practices for sukuk structuring,” it added.

“The programme will provide safe investment alternatives, further contributing to the development of the UAE’s investment environment.”