In recent years, the significant move to lower global rates and the attractive pricing of GCC Sukuk deals have resulted in continued international demand for papers from the region, encouraging more UAE issuers to come to the market. With trillions worth of bonds currently trading at negative yields, it is not hard to see why investors are looking to the Gulf given the strength of major corporates and sovereigns seeking capital raises. This combination of factors was particularly evident when Majid Al Futtaim committed to launch a green Sukuk facility in 2019, the first time a corporate had attempted such a transaction in the region.
The drive to promote green energy in many countries has attracted strategic investors into the sector, primarily driven by strong potential returns and sustainable investment principles. Owing to such factors, a number of countries in the Middle East have been focusing on green energy and installing renewable technologies, from wind to solar, to achieve their energy efficiency strategies. Islamic finance has always been well-positioned to play a significant role in the funding of such projects.
As green energy continues to become a priority for many governments in the region, and the gap in financing these projects widens, Sukuk can play a key role in filling this hole, providing viable investment projects to local and international investors. The ingredients are all there for a surge of issuances in late 2020: benchmark rates are likely to remain low, Sukuk premiums are likely to hold strong, while both corporates and sovereigns will need to raise capital on the back of the coronavirus pandemic.
This is an opportunity for issuers from the region to lock in a low cost of capital and extend the overall duration of their liabilities. The fact that stakeholders of corporates increasingly favor brands that have environmental values at the heart of their proposition is particularly relevant.
Abu Dhabi Islamic Bank (ADIB) has a strong track record in this field and recently supported Majid Al Futtaim’s US$600 million green Sukuk issuance, which is listed on NASDAQ Dubai and due in February 2030, receiving orders in excess of US$2.3 billion. Recognized as world’s first benchmark corporate green Sukuk and the first green Sukuk issued by a corporate in the region, the benchmark transaction will play a key role in helping Majid Al Futtaim’s sustainability program, allowing the leading shopping mall, communities, retail and leisure operator across the Middle East, Africa and Asia to meet its ambition to be net carbon-positive by 2040. ADIB already had form in this area having previously supported Indonesia’s five-year US$1.25 billion green Sukuk in 2018, the first sovereign green Sukuk in the world, which received significant demand from global investors.
As a leading Islamic bank, ADIB itself has seen a concerted effort across aspects of its sustainability performance and governance, whether social, environmental, operational or financial. Signing the Abu Dhabi Declaration on Sustainable Finance last year was a clear statement of ADIB’s commitment to align the bank’s activities with the UAE Vision 2021, the UAE government’s commitment to the Paris Climate Agreement, the United Nations Sustainable Development Goals and the UAE Green Agenda 2015–30.
ADIB remains committed to working with partners to make a positive impact across economic, social and environmental dimensions. Across the bank, there is a common understanding that advocating sustainable finance and investments is good for the UAE’s long-term socioeconomic growth prospects and it will continue to form a central theme of ADIB’s strategy for many years to come.
