x Abu Dhabi, UAEFriday 28 July 2017

Debt unit bond sale due next year

A planned public debt unit to be established by the Federal Government within the next six months is unlikely to consider selling bonds until next year.

The DIFC chief economist Dr Nasser Saidi says debt markets could provide the answer to funding infrastructure projects.
The DIFC chief economist Dr Nasser Saidi says debt markets could provide the answer to funding infrastructure projects.

A planned public debt unit to be established by the Federal Government within the next six months is unlikely to consider selling bonds until next year. The office, to be established by the Ministry of Finance, will not begin handling the issuance of sovereign debt until early next year, a source close to the ministry said yesterday.

In a bid to regulate government debt, plans were first unveiled in September for the unit, which will oversee all sovereign securities including bond issuances. The proposed unit is part of attempts by ministers to try to develop an active local debt market to provide low-cost funding with a prudent degree of risk. It comes as the investment bank EFG-Hermes said there was a need for more clarity about official caps on levels of government indebtedness following an increase in Dubai's debt burden as the emirate took steps to counter a slowdown in its property and financial services sectors last year.

"There does need to be more clarity on the law as Dubai's debt seems to be above official limits," said Monica Malik, the chief economist at EFG-Hermes in Dubai. The bank estimates Dubai's total debt, including that of its government-related entities, to be between US$130 billion (Dh477.42bn) and $170bn. The Federal National Council passed legislation in June limiting the amount the Federal Government can tap into international and local debt markets to 45 per cent of the UAE's total GDP, or Dh300bn, whichever is smaller. At an emirate level, debt is limited to 15 per cent of its GDP.

Dubai's debt load rose substantially after the global financial crisis hit. The Dubai Financial Support Fund (DFSF) oversaw the sale in February of $10bn in bonds to the Central Bank to help companies the Dubai Government controls make debt payments and pay contractors. A further $10bn in funding support was supplied by the Abu Dhabi Government and Abu Dhabi Government-owned banks following the announcement that Dubai World was seeking to delay payment of billions of dollars of debt.

For its part, Abu Dhabi raised $3bn in March under a $10bn bond programme planned until next year for general spending. The Federal Government, however, is yet to issue a sovereign bond. Last June, Younis al Khouri, the director general of the Ministry of Finance, said the country planned to issue its first such bond to finance infrastructure and other expenditure. Funding for infrastructure projects could be provided more easily by the development of debt markets in the region, said Dr Nasser Saidi, the chief economist of the Dubai International Financial Centre Authority.

"It is opportune to raise this financing through debt securities that are based on future cash and revenue flows, as is the case in project finance," Dr Saidi said in a note. The development of local bond markets would enhance the ability of governments and corporations in the region to raise funds efficiently and cost-effectively, he said. Since Dubai World's debt disclosures last year, international attention has focused on the ability of Dubai Government-related entities to service their financial obligations, prompting some of them to publicise their successful bond repayments.

Dubai Holding Commercial Operations Group, the investment company owned by the Dubai Government, made coupon payments worth $100 million on three bonds maturing in 2012, 2014 and 2017, it said yesterday in a statement on the NASDAQ Dubai website. @Email:tarnold@thenational.ae