UAE set to be the first to offer green-energy sukuk

Green bond issuance reached US$36.6 billion globally last year, more than triple the previous year’s total.

Above, the Shams 1 solar power station near Madinat Zayed in Abu Dhabi. The UAE has been actively pursuing green-energy projects. Christopher Pike / The National
Powered by automated translation

The UAE is expected to issue the world’s first Sharia-compliant bond aimed at financing green energy projects this year, possibly as early as next month, according to industry experts.

"We are going to get one, possibly two [green sukuk], in the UAE in April," said Sean Kidney, the chief executive and co-founder of the London-based Climate Bonds Initiative (CBI).

Green bond issuance reached US$36.6 billion globally last year, more than triple the previous year’s total. Mr Kidney said that at least $50bn of green bonds are forecast to be issued this year, but he expects numbers to be even higher.

“We have a reasonable shot at seeing $100bn of [green bond] issuance this year,” he said.

CBI has helped to create international standards for this type of ethically responsible financial security, from which capital raised is used for projects such as solar and wind schemes as well as developing energy efficiency initiatives such as LED lighting.

“I am optimistic that we will see the first green issuance out of the region and into the region during this year,” said Andy Cairns, the managing director of debt origination and distribution at National Bank of Abu Dhabi (NBAD). The bank is currently in discussions with potential issuers, he said.

Mr Cairns said that there were multiple benefits to be gained from the rise of ethically responsible financing mechanisms such as the “halo effect of positive publicity and the associated feel-good factor”.

NBAD helped to issue an ethically responsible sukuk in November. The $500 million Vaccine Sukuk uses the funds raised to buy vaccines to deploy in the developing world.

“They are attractive to issuers by targeting dedicated socially responsible buyers, those funds with a specific mandate to put money to work in socially responsible projects, while also appealing to the broad universe of conventional investors,” said Mr Cairns.

Nasser Saidi, chairman of the Clean Energy Business Council, said that the council has been in discussions with the Dubai Supreme Council of Energy (DSCE) about the issuance of green sukuk, which oversees energy planning in Dubai. DSCE’s members include Dubai Electricity and Water Authority (Dewa).

“That’s why a Dewa sukuk would be a perfect opportunity, and it would be highly supported by the global financial market,” said Mr Saidi.

In January, Dewa said it would increase its target for solar power to account for 15 per cent of total capacity by 2030, up from 5 per cent previously.

Lee Irvine, an associate in the Latham & Watkins law office in Dubai, said the green sukuk first mover would have the greatest advantage to corner the market. The firm is working with the Clean Energy Business Council, the Gulf Sukuk and Bond Association and the Climate Bonds Initiative to promote green sukuk.

“[The first issuer of the green sukuk] will open up the market regionally, and that will allow smaller corporations and enterprises to pursue the financial vehicle,” he said.

Follow The National's Business section on Twitter