Dubai Islamic Bank sells $1bln in perpetual sukuk

The benchmark size AT1 notes, which are perpetual in nature, can first be redeemed by DIB in May 2026

  
General view of Dubai Islamic Bank on January 4, 2017 in Dubai, United Arab Emirates. Image used for illustrative purpose.

General view of Dubai Islamic Bank on January 4, 2017 in Dubai, United Arab Emirates. Image used for illustrative purpose.

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DUBAI - Dubai Islamic Bank, the United Arab Emirates' largest Islamic lender, on Thursday sold $1 billion in Additional Tier 1 sukuk, or Islamic bonds, at 4.625%, a document from one of the banks arranging the deal showed.

Overall debt issuance from the Gulf so far this year has already surpassed last year's total, again topping $100 billion and setting a new record as borrowers - especially governments - seek to bolster their finances amid the coronavirus crisis and weak oil prices.

Several more debt sales are expected before year-end, banking sources said.

DIB began marketing the notes at around 5.25% earlier on Thursday and received over $5.5 billion in orders for the debt sale, the document showed.

"Very tight pricing, coupled with a 5-1/2-times oversubscription, indicates high interest from investors as they lack alternative shariah-compliant instruments, in which there has been a long mismatch between supply and demand," a fixed income strategist said.

Additional Tier 1 (AT1) bonds, the riskiest debt instruments banks can issue, are designed to be perpetual in nature, but lenders can call them after a specified period.

Other banks in the UAE, including First Abu Dhabi Bank, Emirates NBD and Commercial Bank of Dubai have also sold AT1 bonds this year as they seek to shore up their Tier 1 capital as they book higher loan loss provisions amid the coronavirus crisis.

The sukuk's first call date is in May 2026. The profit rate will reset in November 2026 based on a correlation with six-year U.S. Treasury swaps and will reset every six years thereafter.

The deal was arranged by Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank HSBC, Sharjah Islamic Bank, and Standard Chartered.

(Reporting by Yousef Saba; Editing by Jacqueline Wong and Chizu Nomiyama) ((Yousef.Saba@thomsonreuters.com; +971562166204))

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