Dubai Islamic Bank (DIB), the largest Islamic lender in the United Arab Emirates, launched a $500 million sale of Additional Tier 1 sukuk at 3.375 percent on Tuesday, setting a record low rate for the perpetual debt instrument out of the Gulf.
The Islamic bonds were launched at the lower end of a final price guidance range between 3.375 percent and 3.5 percent, which was tightened by 25 basis points from earlier guidance, a document from one of the banks on the deal showed.
National Commercial Bank, now Saudi National Bank after its merger with Samba Financial Group, in January sold $1.25 billion in AT1 sukuk at 3.5 percent, a record low launch yield bested by DIB’s deal.
“It is one of only a handful of sukuk issues from the region this year and Shariah-compliant investors are starved for new issuance and willing to accept lower yield than their conventional counterparts,” one fixed-income strategist said of Tuesday’s launch.
“However, there is a risk that mispricings creep in as a result of such differential pricing between sukuk and conventional bonds — and many would say we are already there.”
Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC and Standard Chartered arranged the sukuk issue.
AT1 bonds, the riskiest debt instruments banks can issue, are designed to be perpetual in nature but issuers can call them in after a specified period. DIB’s issuance will be non-callable for six years.
Several Gulf banks have taken advantage of low rates in recent months to boost tier 1 capital, including National Bank of Kuwait and and Qatar’s Ahli Bank and Commercial Bank.
DIB sold $1 billion in AT1 sukuk at 4.625 percent in November. They are now trading at 3.64 percent, according to data from Refinitiv’s Tradeweb.