The UAE's first dirham-denominated treasury bond was listed on Nasdaq Dubai on Thursday, after the Dh1.5 billion ($408 million) issuance was oversubscribed 6.3 times and received bids worth Dh9.4bn amid strong demand from regional and global investors in the first auction this week.
Mohamed Al Hussaini, Minister of State for Financial Affairs, rang the market-opening bell at the exchange to celebrate the listing and circulation of the T-bond issued by the UAE federal government acting through the Ministry of Finance, state news agency Wam reported.
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.
The ministry plans to issue six treasury bond tranches this year with a total value of Dh9bn, with the value of the tranches (two-year and three-year) in the first auction amounting to Dh1.5bn, with a fixed coupon rate of 3.01 per cent and 3.24 per cent, respectively.
Other tranches will be issued with various tenures for up to five years at later dates throughout the year.
“The Federal Treasury Bond Programme contributes to revitalising the local financial and banking sector and providing alternative financing opportunities for investors, reflecting the strength of economic development indicators, the stability of the financial system and the economy's resilience,” Mr Al Hussaini said.
“The national economy will continue its momentum and leadership during the next phase in the context of transitioning to the new economic model within the UAE 50 economic plan, in which the UAE establishes a diversified knowledge-based economy on innovation, entrepreneurship and advanced industries.”
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 success of the first issuance emphasises the UAE's creditworthiness as one of the world's most competitive and highly advanced economies, and its position as an investment destination for investors and entrepreneurs, Mr Al Hussaini said.
The UAE raised $4bn in October through the issuance of multi-tranche sovereign bonds, marking the first time it had issued bonds at the federal level.
Listed on Nasdaq Dubai, the US dollar-denominated bond package 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 latest T-bond listing increases the value of domestic and international fixed income listings on Nasdaq Dubai to $102bn, the Wam report said.
“The second bond listing from the UAE federal government underscores the government's confidence in Nasdaq Dubai's comprehensive infrastructure … for the issuance and listing of fixed income instruments from sovereign and commercial issuers in the UAE and globally,” said Hamed Ali, chief executive of Nasdaq Dubai.
Six agent banks have been appointed by the Ministry of Finance as primary dealers for participants in the market auction of the T-bonds and to actively develop the secondary market.
They include Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, Mashreq Bank and Standard Chartered.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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