Strategic Implications of Arab National Bank's USD-Denominated AT1 Sustainable Sukuk Issuance

The issuance of USD-denominated Additional Tier 1 (AT1) Sustainable Sukuk by Arab National Bank (ANB) in 2025 represents a pivotal moment in Islamic finance, blending capital resilience with global diversification. This SAR3.35 billion (USD890 million) sukuk, part of ANB’s SAR11.25 billion AT1 program, underscores how Islamic finance is evolving to meet modern capital demands while adhering to Shariah principles and sustainability goals [1].

Shariah-Compliant Structure and Capital Resilience

ANB’s sukuk is structured under a Shariah-compliant framework, with ANB Sukuk Ltd. as the issuing entity. The instrument carries a special commission rate of 3.326% and is callable in five years, reflecting a balance between investor returns and regulatory flexibility [2]. Unlike conventional bonds, sukuk transfers ownership of tangible assets to investors, aligning with Islamic principles of risk-sharing and asset-backed transactions. This structure, reinforced by AAOIFI Standard 62, ensures that returns are tied to the performance of underlying assets, enhancing transparency and reducing systemic risk [3].

The sukuk’s alignment with Sustainable Fitch’s Second-Party Opinion further strengthens its credibility. The framework adheres to ICMA Green and Social Bond Principles, ensuring that proceeds fund projects aligned with environmental and social goals, such as renewable energy and affordable housing [4]. This dual compliance—Shariah and ESG—positions the sukuk as a resilient tool for capital raising, particularly in markets where ethical investing is gaining traction.

Global Capital Diversification and Market Resilience

The USD denomination of ANB’s sukuk is a strategic move to diversify capital sources. By accessing foreign currency markets, ANB mitigates domestic liquidity risks and taps into a broader investor base, including global institutional investors seeking yield in a low-interest-rate environment [5]. This aligns with a broader trend: global sukuk issuance in 2025 is projected to exceed USD1 trillion, driven by OIC countries and emerging markets [6].

Comparative studies highlight sukuk’s unique advantages over conventional bonds. For instance, sukuk exhibit lower tail-risk connectedness during crises, such as the Russia-Ukraine war or the 2023–2025 period of macroeconomic volatility [7]. A Malaysian case study found that green sukuk outperformed conventional green bonds in mean returns, underscoring their appeal to risk-averse investors [8]. ANB’s sukuk, with its perpetual structure and high-yield potential, further reinforces this trend, offering a hedge against interest rate fluctuations and geopolitical uncertainties [9].

Islamic Finance’s Role in a Shifting Global Landscape

The sukuk market’s growth reflects Islamic finance’s adaptability. By 2025, ESG sukuk alone reached USD44.5 billion in outstanding value, a 23% year-on-year increase, as investors prioritize sustainability [10]. ANB’s issuance contributes to this shift, demonstrating how Islamic finance can integrate ethical frameworks with capital efficiency. For example, Alinma Bank’s USD1.75 billion AT1 sukuk—rated ‘A2’ by Moody’s—showcased strong investor demand, with 40% of allocations from international investors [11]. Such cases highlight sukuk’s potential to bridge traditional Islamic finance with global capital markets.

Conclusion

ANB’s USD AT1 Sustainable Sukuk exemplifies how Islamic finance is redefining resilience and diversification. By adhering to Shariah and ESG principles, the sukuk not only strengthens ANB’s capital structure but also broadens access to global capital. As sukuk issuance continues to grow, its role in stabilizing portfolios and supporting sustainable development will likely expand, offering a compelling alternative to conventional instruments in an increasingly uncertain world.

Source:
[1] Arab National Bank, [https://anb.com.sa/documents/55607/0/ANB+FS+-+Q1+2025+Eng.pdf]
[2] Arab National Bank Sukuk Profile, [https://www.saudiexchange.sa/wps/portal/saudiexchange/hidden/company-profile-sukuk/!ut/p/z1/lc_BUoMwEAbgZ-kDOLuGEuIxFqWtIAQG2-biZDAimgYHYvv6Yk9lqlb3tjPfP7s_SFiDtGrX1Mo1rVVm2DeSPvqcIpkzTFN-FaC4XV5Hi5h7zPdgNQYsiSiKey5SEviIBQH5rzwWmT-ALPFizDFC-rc8_jAcz-flmLAwnA3kjs2XmBIM6Qk4rTgG33Q4gF-eLLQ9NAmOXk3EDClO85I-hJfICaw63bcfXaUhr7XjxpTWNL3TT4nq3rTrQVSqetGx3mmTqVpD8XX4ue22ysHmtW8tvG_Lco3N4oLtb_Z8MvkEkPiIVw!!/dz/d5/L0lHSklKSUtVS1VKQ2dwUkNTQ2lDbEVpUS9ZSVlFQUFJTUVBQUFFRU1DS0lNQUdFR09FT0VCSkZKRkJKTU5ORERMRExORENISU1FQSEhLzRKQ2lqSzJNWEhFSUpTWkNtcXBKektGTmJ0cGJHYWxsVlJrZy9aN181QTYwMkg4ME8wVkM0MDYwTzRHTUw4MUdBMS9aNl81QTYwMkg4ME9PQTk3MFFGSkJHSUxBMzlDNC92aWV3L25vcm1hbC9lbi9nbG9iYWwvaHR0cDolMCUwQ29tcGFueVByb2ZpbGV2MlN1a3VrJTAvU3VrdWtCb25kc1N5bWJvbC8xNDI2]
[3] AAOIFI Standard 62, [https://iciec.isdb.org/insights/re-imaging-the-role-of-murabaha-syndications-and-sukuk-as-development-drivers/]
[4] Sustainable Fitch, [https://www.sustainablefitch.com/banks/sustainable-fitch-spo-provided-for-arab-national-bank-sustainable-finance-framework-30-06-2025]
[5] Global sukuk growth, [https://www.theasset.com/article/54359/islamic-finance-awards-2025-best-issuers-banks-advisers]
[6] Re-imaging the Role of Murabaha Syndications and Sukuk, [https://iciec.isdb.org/insights/re-imaging-the-role-of-murabaha-syndications-and-sukuk-as-development-drivers/]
[7] Tail-risk connectedness, [https://www.sciencedirect.com/science/article/pii/S2214845023001461]
[8] Green sukuk vs. green bonds, [https://www.emerald.com/imefm/article/doi/10.1108/IMEFM-12-2024-0609/1251494/A-comparative-analysis-of-green-sukuk-and-green]
[9] Alinma Bank’s sukuk, [https://www.ainvest.com/news/alinma-bank-usd-at1-sukuk-offering-strategic-move-resilience-high-yield-rising-rate-era-2508/]
[10] ESG sukuk growth, [https://iciec.isdb.org/insights/re-imaging-the-role-of-murabaha-syndications-and-sukuk-as-development-drivers/]
[11] Moody’s rating, [https://www.ainvest.com/news/alinma-bank-usd-at1-sukuk-offering-strategic-move-resilience-high-yield-rising-rate-era-2508/]