First auction of dirham treasury bonds oversubscribed 6.3 times amid strong demand

The Dh1.5bn UAE T-bond programme witnessed strong demand with bids reaching Dh9.4bn

T-bonds are fixed-rate government debt securities that pay semi-annual interest payments until maturity. Antonie Robertson / The National

The first auction of the UAE's conventional dirham-denominated treasury bonds was oversubscribed 6.3 times and achieved bids worth Dh9.4 billion ($2.6bn), the government said on Wednesday.

The Emirates last month announced the launch of a T-bonds issuance programme for 2022 with a benchmark size of Dh1.5bn, as part of plans to build a local currency bond market and diversify its financial resources. This is part of the total Dh9bn T-Bonds issuance programme for this year.

T-bonds are fixed-rate government debt securities that pay semi-annual interest payments until maturity, online financial encyclopaedia Investopedia said. They are also considered to be relatively risk-free.

The launch of the Dh1.5bn UAE T-bond programme witnessed strong demand through the six primary bank dealers, the government statement said.

The UAE government is represented by the Ministry of Finance as the issuer, in collaboration with the Central Bank of the UAE as the issuing and payment agent.

“The strong demand was across both tranches, with a final allocation of Dh750 million for the two years tranche, and Dh750m for the three-year tranche,” the statement said.

The success of the first auction is part of strengthening the UAE’s economic competitiveness and supporting the sustainability of economic growth, said Sheikh Maktoum bin Mohammed, Deputy Prime Minister, Minister of Finance and Deputy Ruler of Dubai.

Sheikh Maktoum said this success is reflected in the attractive market driven prices which achieved a spread of 28 basis points (bps) over US Treasuries for two years and 29 bps for three years.

The first issuance is a “milestone towards building a dirham-denominated yield curve” and providing safe alternatives for investors that will strengthen the local financial market and develop the investment environment, he added.

The T-bonds issuance programme is open for all eligible investors and will soon be followed by a listing on Nasdaq Dubai to promote secondary market trading along with primary dealers.

The first auction will be followed by a series of periodic auctions, in line with the proposed 2022 issuance plan.

“This reflects confidence in the UAE’s economic and financial policies and its future development plans,” said Sheikh Mansour bin Zayed, Deputy Prime Minister, Minister of Presidential Affairs and chairman of the board of directors of the UAE Central Bank.

“It also reflects the UAE's position as an attractive hub for investment, its strong creditworthiness and economic and competitive capabilities at the global level … it constitutes a new phase in promoting the robust performance of the UAE’s financial sector, providing safe and advanced dirham-denominated investment.”

This reflects confidence in the UAE’s economic and financial policies and its future development plans

Sheikh Mansour bin Zayed,
Deputy Prime Minister and Minister of Presidential Affairs

The T-Bonds will be denominated in UAE dirhams to develop the local bonds debt market and to develop the midterm yield curve. The securities will be issued initially in two-, three- and five-year tenures, followed by a 10-year bond, the statement said.

The lowest bid for the two-year tenure was at 2.88 per cent, with the weighted average bids at 2.96 per cent and the final uniform coupon rate fixed at 3.01 per cent. The lowest bid for the three-year tenure was at 2.95 per cent, with the weighted average bids at 3.09 per cent and final uniform coupon rate fixed at 3.24 per cent.

The UAE raised $4bn last year through the issuance of multi-tranche sovereign bonds, marking the first time it issued bonds at the federal level.

The bond package, which is denominated in US dollars, included conventional medium- and long-term 10- and 20-year tranches, as well as 40-year dual-listed Formosa bonds, the Ministry of Finance said at the time.

The UAE plans to issue more dollar-denominated bonds in 2022, Younis Al Khoori, undersecretary of the Ministry of Finance, said last year. Individual emirates are also free to issue debt to meet their own needs, he said.