Bank AlJazira Plans New USD AT1 Capital Sukuk Issue

Bank AlJazira announced plans to raise U.S. dollar-denominated additional Tier 1 capital through a sukuk, drawing on a program established Sept. 4 of this year. The size and pricing of the transaction will be set based on market conditions at the time of launch, the bank said.

AT1 instruments, common in Basel III capital stacks, absorb losses before common equity and carry discretionary coupon payments. For Saudi banks, dollar-denominated issuance taps a global investor base while offering a yield premium over traditional senior debt. The sukuk structure adds Sharia compliance, a factor that widens the pool of eligible buyers across the Gulf and Islamic finance hubs in Asia.

The move comes as Gulf lenders step up capital-market activity, partly to refinance existing instruments and partly to fund balance-sheet growth. Bank AlJazira’s decision to issue in dollars rather than riyals suggests the bank sees deeper demand offshore, where real yields remain attractive relative to comparable emerging-market bank paper.

For the broader Saudi banking sector, a successful dollar AT1 sukuk from AlJazira could serve as a pricing benchmark for peers eyeing similar transactions. Riyad Bank and Saudi British Bank have both raised Tier 1 capital in recent years, though not always via sukuk. If AlJazira clears the deal at tight spreads, it may prompt other lenders to accelerate their own issuance calendars.

Investors will watch the coupon level closely. AT1 paper carries call features and often resets pricing after five years. Given the current rate environment and the bank’s credit profile, the coupon will need to strike a balance between cost and investor demand. The bank has not disclosed a target date for the sale.