UAE defers bond issue

The UAE has put on hold plans to issue its first federal sovereign bond, which was widely anticipated by the end of 2012, for two years, Shaikh Hamdan bin Rashid Al Maktoum, UAE Finance Minister and Deputy Ruler of Dubai, said on Tuesday. Shaikh Hamdan on the sidelines of an exhibition said the emirate’s government-related entities, or GREs, which have been undergoing restructuring since 2009, are in a good shape. Market watchers have been speculating about the first UAE federal bond issue of $1 billion before the year-end after a public debt bill becomes law. The Federal National Council, the UAE’s top advisory council, passed a public debt bill in December 2010 in a move aimed at establishing a local debt market. The legislation is still awaiting presidential approval to become law. In June 2011, Obaid Humaid Al Tayer, Minister of State for Financial Affairs, said the UAE might launch its first federal bond by the end of 2012, if necessary, after the public debt law is signed this summer. When asked whether the bond would be issued this year, Shaikh Hamdan was emphatic in saying no. Other senior Finance Ministry officials, including Younis Al Khouri, director-general of the ministry, had previously been quoted as saying the UAE’s federal sovereign bond would debut at the end of 2012. Financial analysts believe that borrowing at the federal level would likely help reduce cost of funding public debt. The UAE’s federal legislation prescribes a limitation on government debt to 25 per cent of the gross domestic product, or Dh200 billion, whichever is lower. Sounding very upbeat about GREs, Shaikh Hamdan said: “They are alright. There are no problems with them.” Referring to the state utility, Dubai Electricity and Water Authority, or Dewa, he said it is in a good position. Early this month, Dewa ruled out any plan to tap bond markets in 2012, and said it would repay Dh1.2 billion securitisation maturity this year ahead of time. Dewa, which issued Dh7.35 billion worth of bonds in October 2010, is expanding power generation capacity to 9,600 megawatts from 8,700 megawatts in five months when its new M Station plant comes on stream. Another Dubai state unit, Dubai Drydocks World, or DDW, the largest ship building company in the Middle East, said last week that it would soon present a proposal to lenders to restructure its debt obligations under a $2.2 billion syndicated facility. Shaikh Hamdan’s robust optimism is reflective of positive signals about Dubai’s growth prospects as its economy is poised to achieve a growth of 4.5 per cent after posting over 3 per cent expansion in 2011. Shaikh Ahmed bin Saeed Al Maktoum, Chairman of the Dubai Economic Sector Committee, said recently that Dubai’s economic activity was gaining new momentum amid rising optimism. He said during a presentation at the recently concluded Dubai Economic Outlook Forum that Dubai’s strategy of creating new opportunities through diversification has succeeded in bringing about economic prosperity and stability despite the difficulties it had experienced, particularly in 2009 and early 2010. He had pointed out that Dubai’s GREs once again exhibited strong determination and ability to service debt obligations. “We have seen ratings upgrades reflecting strong internal revenue generation,” he said.