UAE’s 3^rd Auction of Islamic Treasury Bonds in 2023 Oversubscribed 5.5 Times

The Ministry of Finance announced that the 3^rd auction of the United Arab Emirates’ dirham-denominated treasury sukuk for the year received an overwhelming response, with subscription levels reaching 5.5 times the amount offered. The auction attracted bids worth 6 billion dirhams (1.63 billion dollars), indicating strong investor demand for the securities. This action aligns with the government’s initiative to implement a Sharia-compliant treasury bonds program for the current year.

The Ministry disclosed that, during the 3^rd auction, the launch of the inaugural Sharia-compliant treasury sukuk denominated in dirham with a five-year maturity witnessed an oversubscription of 6.6 times, indicating robust demand from enthusiastic investors.

T-sukuk, which are compliant with Sharia principles, are financial certificates that operate on a unique structure. As explained by Investopedia, the party issuing a sukuk sells certificates to a group of investors, utilizing the funds to acquire an asset on behalf of the investors. This arrangement grants investors collectively a shared ownership stake in the underlying asset.

By diversifying its investment sources and fostering the expansion of Islamic economy, the UAE, the 2nd largest economy in the Arab World, strives to achieve greater financial stability and sustainability

During the month of May, the UAE government made an announcement that the initial auction of the country’s annual treasury sukuk issuance denominated in dirhams had an oversubscription rate of 7.6 times. The total value of the bids received amounted to 8.3 billion dirhams, whereas the first auction’s value was 1.1 billion dirhams.

As per the statement issued by the Ministry on Wednesday, the T-sukuk program is expected to play a pivotal role in establishing a robust yield curve denominated in UAE dirham. This initiative will offer secure investment options to investors, foster a conducive investment environment, bolster the domestic debt capital market (DCM), and ultimately support sustainable economic growth.

The UAE Central Bank plays an active role as the issuing as well as payment agent in collaboration with the Ministry of Finance, which represents the government, as the party responsible for issuance during the Islamic treasury bonds auction.

As per the Ministry’s report, the most recent auction experienced significant interest from the 8 primary bank dealers. This high demand was notable in both the two-year as well as five-year segments. The auction’s success is apparent in the competitive prices determined by the market, with a tight margin ranging from zero to two basis points over equivalent US Treasuries.

In order to foster growth and improve liquidity in the secondary market, the auction also incorporated the strategy of reopening the two-year T-sukuk. By doing so, it helps to further expand the size of individual sukuk issues over time.