Between the Dollar and the Dirham: First Abu Dhabi Bank and Emirates Islamic Tap the Debt Market from Two Different Doors

In the debt market, the figure announced first is rarely the figure paid. Emirates Islamic's Sukuk in March 2025 started at 125 basis points over U.S. Treasuries and ended at 95. First Abu Dhabi Bank's Sukuk last May started at 115 and ended at 85. The difference in both cases is 30 basis points, which equals roughly $2.25 million annually on a $750 million issuance. Anyone reading the opening figure as the funding cost is reading only half the story—a rule learned by anyone who has followed order books for years.

This week, the scene repeats itself through two different doors. First Abu Dhabi Bank priced its first green digital bond in AED at a benchmark size at 75 basis points over the swap rate. Meanwhile, Emirates Islamic began investor meetings for a five-year dollar Sukuk, whose size and price have yet to be determined. One bank completed negotiations while the other is starting them; each has a different currency, benchmark, instrument, and audience, in a quarter where Gulf bond and Sukuk issuances dropped 17.5% according to "Enterprise," at a time when UAE banks are raising deposit rates.

A direct comparison between the figures of the two deals is deceptive, because one is measured against Treasuries and the other against swap rates, and because they differ in credit ratings and pricing stages. Therefore, this article reads both deals together to see what they reveal about funding costs in the UAE, and what investors should watch before passing judgment.

What does each number measure?

A basis point equals 0.01%. The spread over U.S. Treasuries is the difference between the issuance yield and the yield of a U.S. Treasury bond of comparable maturity, which is the standard benchmark for dollar Sukuk. The swap rate is the fixed interest rate accepted by the market in interest rate swap contracts, used as a benchmark for non-dollar issuances. Initial guidance is what lead managers announce at the start of book building, which is typically tightened as orders accumulate, whereas the final number is what the bank actually pays. Thus, comparing a final figure tied to swap rates with initial guidance tied to Treasuries is invalid.

Two different instruments

Emirates Islamic's upcoming Sukuk is fixed-rate and unsecured, expected to be senior rank, meaning equal in priority with the bank's other unsecured debts. Issued under a $4 billion program, in U.S. dollars, and in an international market, investors do not earn interest but rather profit generated from a Sharia-compliant contract. The bank is rated A+ by Fitch.

First Abu Dhabi Bank’s bonds are green, dirham-denominated, in the local market. The green designation means that the equivalent of proceeds is allocated to finance or refinance eligible environmental projects under the bank’s sustainable finance framework, while the digital label pertains to the issuance and settlement method. The bank is rated AA- by Fitch and S&P, and Aa3 by Moody’s. On Fitch's scale, the difference between the two banks is one notch, from A+ to AA-. This is a real difference in debt pricing, but it is not the sole explanation for any gap between spreads, as currency, benchmark, tenor, and pricing stage all enter the equation.

What do we know about Emirates Islamic's pricing?

The spread on the current deal has not yet been announced, but the bank’s history provides reference points. In September 2025, it priced $500 million in sustainability-linked Sukuk at 95 basis points over U.S. Treasuries for five years, yielding 4.54%, after the order book reached $1.2 billion, representing an oversubscription of 2.4 times. In March 2025, it priced $750 million in senior Sukuk at 95 as well, following a 30-bps tightening from 125, with an order book exceeding $1.6 billion (2.1x covered). In May 2024, tightening was also 30 bps, from 130 to 100.

This tightening pattern is not unique to this bank. First Abu Dhabi Bank’s dollar Sukuk in May 2026 started at around 115 bps and ended at 85 with a coupon of 4.859%, also tightening by 30 bps. These examples demonstrate how initial guidance moves, but they do not guarantee the current deal will follow suit, as the outcome depends on demand volume, distribution, and market conditions at the time of pricing.

The importance of tightening is tangible. Every 10 basis points equates to $500,000 per year on a $500 million issuance, and $750,000 on a $750 million issuance—a simplified calculation assuming constant principal throughout the term. Therefore, the bank reads the order book before anything else, alongside the quality of demand. First Abu Dhabi Bank’s order book for green eurobonds in June 2026 peaked above 1.4 billion euros and settled at 1.1 billion post-tightening, shrinking by roughly one-fifth. A book that expands at initial guidance and contracts upon tightening is a recurring lesson in this market.

Why do spreads differ?

I do not have data for both deals to determine the weight of each factor, but several potential factors are worth mentioning. First, market conditions: "Zawya" reports in May 2026 described the U.S.-Iran war as bringing debt market activity in the region to a virtual standstill, later reporting in June that Gulf issuances gradually returned following the peace agreement, though borrowing costs remained higher. Second, banks' need for funding amid rising deposit costs, which may reduce their ability to negotiate aggressively—an assumption unconfirmed by statements from either bank. Third, differences in instrument structure: the September 2025 issuance was a sustainability-linked Sukuk, a structure differing from green bonds tied to use of proceeds, and the effect of this classification on pricing compared to conventional Sukuk remains unclear.

Digitization: What do we know?

In July 2025, First Abu Dhabi Bank issued the region’s first native digital bond, worth $100 million with a three-year maturity and floating rate, listed on the Abu Dhabi Securities Exchange and issued via HSBC’s Orion platform. Native digital bonds register ownership on a distributed ledger, expected to shorten settlement times, reduce counterparty risk, and clarify ownership records. However, these benefits depend on individual issuance design rather than being a guaranteed outcome for every digital paper.

As for the new dirham bonds, available sources do not specify platform details, digital issuance/settlement limits, or secondary market trading mechanisms. These are questions the bank should answer. Digitization does not automatically mean liquidity, as liquidity is created by buyers and sellers. The closest available indicator is Emirates NBD’s AED 1 billion digital bond in January 2026, which saw its order book reach AED 1.3 billion.

The Dirham and the Dollar

The dollar market is the global pricing market, hosting investors from Asia, Europe, and the Gulf, with larger volumes and a well-known U.S. Treasury curve. A bank seeking to raise hundreds of millions for five years and diversify its investor base heads there.

The dirham market is narrower regarding investor base and size, but fulfills a role the dollar market cannot: offering local companies, banks, and institutions a source of funding and investment in local currency without FX risk. The government is also building the dirham yield curve: in April 2026, the Ministry of Finance sold seven-year Treasury Sukuk yielding 10 bps over U.S. Treasuries, oversubscribed fivefold. When the government borrows at this rate, it sets a benchmark for banks and corporates to gauge what they should pay. The dirham has been pegged to the dollar at 3.6725 since 1997, limiting currency risk for dirham-based investors, though investors measuring returns in other currencies retain currency risk, and the peg itself remains a policy decision dependent on ongoing strategy.

What should investors watch?

Interest rate risk exists in fixed-rate Sukuk, with a rough estimate that a five-year Sukuk loses about 4% to 4.5% of its value if the yield rises by one percentage point, varying by coupon and modified duration. Credit risk is lower for an AA- rated bank than an A+ rated bank, though rating alone does not isolate pricing impact. Liquidity risk appears when selling before maturity. For green bonds, investors should request allocation and impact reports regarding proceeds.

Post-issuance, four elements should be monitored: the final spread compared to initial guidance; allocation size and coverage ratio (a $1 billion order book means something different for a $500 million issue versus a $750 million issue); investor breakdown by geography and type (for reference, 62% of FAB's Sukuk allocations in May went to banks and private banks, and 28% to fund managers); and secondary market price performance after a few weeks, evaluated alongside benchmark yield movements and trading volume rather than in isolation.

What the two deals reveal and what they don't

The two deals highlight differing funding options between a higher-rated and a lower-rated bank, though they alone are insufficient to isolate credit rating's exact impact on funding costs. They reveal that UAE banks are combining dollar and dirham issuances alongside Islamic, green, and digital instruments simultaneously.

What remains impossible to judge yet is the final spread of Emirates Islamic’s Sukuk, the strength of its order book, and the liquidity of digital dirham bonds. Upcoming weeks will answer these questions; until then, it is safest to read the numbers as they are: an opening, not a closing; a reference point, not a final verdict.