The Ministry of Finance (MoF) in collaboration with the UAE’s central bank (CBUAE) announced the results of the Islamic treasury sukuk (T-sukuk) auction on Wednesday. This auction falls under the Islamic T-sukuk issuance program for the second quarter of 2024.
The auction saw strong demand from the eight primary dealers for both the 3-year and 5-year tranches of the sukuk, with bids reaching AED9.81 billion ($2.67 billion) and an oversubscription of 8.9 times.
This great demand reflects the T-sukuk’s attractive market prices, with a yield to maturity of 4.57 percent on the 3-year tranche and 4.44 percent on the 5-year tranche. This represents a 5 basis point price tightening below U.S. Treasuries with similar maturities at the time of the auction.
The UAE launched the Islamic T-Sukuk issuance program with the aim of supporting its dirham-denominated yield curve, providing safe investment alternatives for investors, and strengthening the local debt capital market. Moreover, the program seeks to develop the country’s investment market and support its sustainable economic growth.
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Islamic instruments such as treasury sukuk are becoming popular investment options in the Gulf Cooperation Council. Recently, Fitch Ratings expected that the GCC debt capital market will surpass $1 trillion in outstanding sukuk. The agency attributes this growth to funding and refinancing needs, diversification efforts, development goals in the debt capital markets, and lower interest rates. However, it cites some risks including the potential new Shariah requirements that could alter sukuk credit risk. Moreover, it acknowledges the risks that geopolitical uncertainties and high oil prices pose.
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