Dubai Islamic Bank (DIB) has kicked off the sale of USD 500 mn in additional tier 1 (AT1) sukuk, with initial price guidance set in the 5.75% range, Reuters reported yesterday, citing an arranging document it saw. DIB was expected to see the final price set later yesterday.

The bonds will be non-callable for six years, meaning DIB can’t redeem them during that period except by paying a penalty.

AT1 bonds? They’re a common way banks raise core tier-one capital without diluting shareholders by raising equity. Additional tier one certificates (or just “AT1 certificates”) are a form of subordinated debt — they rank behind other types of bank debt in case of liquidation. That makes them riskier than senior debt, but still prioritizes them above equity holders. AT1 certificates are “perpetual” in that they have no fixed maturity date. They pay interest in much the same way as a bond does, but usually can be converted into equity in some circumstances — that’s why they’re often called CoCos in the industry, for “contingent convertibles.”

ADVISORS- DIB appointed Al Rajhi Capital, DIB, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, Sharjah Islamic Bank, and Standard Chartered Bank as joint lead managers and joint bookrunners.

The issuance is DIB’s second this year: The emirate’s largest Islamic bank sold its five-year, USD 1 bn sustainable sukuk in February, receiving USD 2.5 bn worth of orders. DIB achieved its lowest credit spread on the sustainable sukuk, tightening pricing to 95 bps over US treasuries after seeing strong demand from investors. The sukuk was part of its USD 7.5 bn trust certificate issuance program.

It’s also the second AT1 issuance from a local lender: Our friends at Mashreq issued a USD 500 mn additional Tier 1 bond in June, with an annual coupon rate of 7.125%, with a 270.5+ basis point (bps) reset margin — the lowest coupon for AT1 bonds set by a bank in the UAE in the past three years.