Federal Government to issue first bond by 2018

The UAE hopes to issue its first ever federal bond before 2018, a move that should help to stimulate a local bond market.

The UAE aims to issue its first federal bond before 2018, a move that should help to stimulate a local bond market, says a senior government official.

The dirham-denominated debt would help banks meet Basel III global liquidity rules coming into force that year, said Younis Al Khouri, the undersecretary of the Ministry of Finance.

Plans for a federal bond have remained in their infancy despite the drawing up of a federal public debt law, which was approved by the Federal National Council in 2010. The legislation is required to oversee the launch of all sovereign securities including bond issuances.

Mr Al Khouri appeared to give an insight into why the law had been delayed. After careful study, he said, the ministry had decided to abandon plans to merge the bill with local debt laws managing bond issuances for individual emirates.

In the past, Abu Dhabi, Dubai, Ras Al Khaimah and other emirates have made sales to international investors, but the federal government has yet to do so.

The Central Bank of the UAE had been seeking to speed up the passage of the law to enable banks to comply with Basel III rules. The rules require banks to have a certain percentage of sovereign bonds on their balance sheets.

The Finance Ministry was studying, with the Central Bank, the size of a possible issuance of federal bonds, which might be issued in the near future once studies on the issue had been completed, Mr Al Khouri said.

The federal government was not in direct need of issuing bonds because its budget was always balanced and had benefited from years of surpluses, he said. But the move would enable the development of a local debt market, required to create a so-called yield curve, which businesses can use to price their own issuances in the future. It would also help enable businesses to diversify their financing sources.

mkassem @thenational.ae

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