UAE’s third auction of Islamic treasury bonds in 2023 oversubscribed 5.5 times

The third auction of the UAE’s dirham-denominated treasury sukuk for the year was oversubscribed by 5.5 times, receiving bids worth Dh6 billion ($1.63 billion), the Ministry of Finance said on Wednesday.

The move comes as part of the government’s Sharia-compliant treasury bonds programme for this year.

The third auction also involved the issuance of the first dirham-denominated Sharia-compliant treasury sukuk with a five-year maturity, which was oversubscribed by 6.6 times, the ministry said.

T-sukuk are Sharia-compliant financial certificates. The issuer of a sukuk essentially sells an investor group a certificate and then uses the proceeds to purchase an asset that the investor group has direct partial ownership interest in, according to online financial encyclopaedia Investopedia.

The UAE, the Arab world’s second-largest economy, is seeking to diversify its funding resources and support the growth of the Islamic economy.

In May, the government announced that the first auction of the UAE’s dirham-denominated treasury sukuk for the year was oversubscribed by 7.6 times, receiving bids worth Dh8.3 billion.

The value of the first auction stood at Dh1.1 billion.

“The T-sukuk programme will contribute to building the UAE dirham-denominated yield curve, providing safe investment alternatives for investors, strengthening the local debt capital market, developing the investment environment, as well as supporting sustainable economic growth,” the ministry said on Wednesday.In the Islamic treasury bonds auction, the government is represented by the Ministry of Finance as the issuer, in collaboration with the UAE Central Bank as the issuing and payment agent.

The latest auction received strong demand through the eight primary bank dealers, the ministry said.

“The strong demand was on both, the two- and five-year tranches. The success is reflected in the attractive market driven prices, which was achieved by a spread of zero to two basis points over US Treasuries with similar maturities,” it said.

The auction also followed the practice of reopening the two-year T-sukuk “which helps in building up the size of individual sukuk issues over time and improve liquidity in the secondary market”.