UAE launches ‘t-sukuk’ to support monetary policy

The Central Bank of the United Arab Emirates (CBUAE) and the country’s Ministry of Finance have launched a dirham-denominated ‘t-sukuk’ in a $272 million auction, as the central bank implements a new monetary framework. 

The t-sukuk “will contribute to the implementation of the new dirham monetary framework and support the ongoing work to establish the dirham yield curve”, said Khaled Mohamed Balama, governor of the CBUAE. 

According to media reports, the t-sukuk will be issued initially in two, three and five-year tenors. The new instrument is designed with the intention to develop the local debt market and enable market participants in the UAE to “maintain a single, transparent, diversified and sustainable liquidity pool in dirhams”, Balama added. 

Sukuk differ from bonds as they are equity rather than debt-based and their value changes with that of the underlying asset. As such they avoid the Islamic ban on interest. The central bank’s higher sharia authority approved the structuring of the sukuk. 

Eight banks – Abu Dhabi Islamic Bank, Dubai Islamic Bank, Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, Mashreq and Standard Chartered – have been onboarded as primary dealers. The banks will also work to develop the secondary market. 

Following a consultation with the International Monetary Fund and market participants, the CBUAE’s board of directors launched the dirham monetary framework in 2020. 

As part of the framework, the central bank said it aims to introduce liquidity facilities to ensure domestic money market rates align to US levels, to support the foreign exchange peg to the dollar. 

Another aim is to improve the central bank’s capacity to manage liquidity, by clearly separating its standing facilities and open market operations.