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UAE T-Sukuk to support Islamic finance ecosystem, investment options

IFM_UAE T-Sukuk
The T-Sukuk will initially be issued with terms of 2, 3, or 5 years, with a 10-year sukuk following at a later time

The UAE launched a dirham-denominated Islamic Treasury Sukuk (T-Sukuk), with a benchmark auction size of AED1.1 billion ($299 million). According to Fitch Ratings, the sukuk will aid in funding measures for financial diversification and the UAE’s Islamic financial environment.

“The T-Sukuk would give Islamic banks and conventional banks an option to invest their liquidity, and it could also help open the way for corporates and financial institutions to issue dirham-denominated bonds and sukuk,” said, Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings, the Zawya reported.

“This step is expected to help build the domestic yield curve and provide a pricing reference for dirham-denominated bonds, sukuk and loan products,” he added.

The T-Sukuk will initially be issued with terms of 2, 3, or 5 years, with a 10-year sukuk following at a later time.

The issuance is anticipated to boost economic diversification, the growth of capital market operations, and financial inclusion in addition to helping to create a local currency bond market.

Khaled Mohamed Balama, Governor of CBUAE, said: “We are confident that this issuance will contribute to supporting the market for bonds denominated in the local currency and issued by the public sector in the country. It will also enhance the competitiveness of the local financial markets and enable market participants in the UAE to maintain a single, transparent, diversified and sustainable liquidity pool in dirhams.”

Investment options

Sukuk and bonds denominated in dirhams would enable investors to diversify their investment options.

“It could also allow investors to access smaller-sized or lower-rated domestic issuers unable to issue debt in the international market,” Fitch Ratings’ Bashar said, adding, “Investors would also benefit from the UAE dirham’s peg to the US dollar, with no additional currency risk exposure. However, investing in the broader corporate debt market spectrum could entail additional credit risk.”

The governor of CBUAE stated that issuing an Islamic treasury sukuk would complement the current efforts to build the Dirham risk-free pricing benchmark (yield curve), as well as the implementation of the new Dirham Monetary Framework (DMF).

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