S&P agency says credit rating interest is growing among UAE firms

New government rules are spurring an uptick in interest from UAE companies in gaining a credit rating.

Standard & Poor's is seeing an uptick in interest from UAE companies in gaining a credit rating as new caps on bank lending encourage government-linked firms to turn to bond markets.
Separate draft rules on debt issuance by the Securities and Commodities Authority (SCA) were also encouraging companies to consider bond sales, said Stuart Anderson, the managing director and regional head of the Middle East at S&P.
"We are seeing a strong level of inquiry from previously unrated corporates," he said yesterday. "Markets are positive in terms of trajectory, there appear to be strong interest from existing and potential issuers."
Issuance of conventional bonds and sukuk dropped to US$28.9 billion last year, from $36.9bn the year before, show data from IFR, a subsidiary of Thomson Reuters, the media and research company.
Mr Anderson said new regulations were among the key factors likely to drive bond markets this year.
In November, the Central Bank announced new banking rules, capping the extent of loans to local government and companies linked to them at 100 per cent of the lending bank's capital base. Banks will have five years to comply with the rules.
"Assertive implementation and monitoring of those rules should help the debt capital market," said Mr Anderson. "It should certainly be forcing quite a number of these GREs [government-related entities] to look towards the conventional bond and or sukuk market for future funding needs or even refinancing."
In December, the SCA said it was in the final stages of drafting new rules aimed at stimulating the local bond and sukuk market.
"They suggest that credit ratings will be mandatory for a publicly issued or listed bond," he said. "It's clear in many emerging markets which have underdeveloped, almost nascent markets – Malaysia is the best example, actually – there is a requirement for domestic issuance to have a rating to actually kick start the market."
In a sign of growing local interest in the bond market, Sharjah this month for the first time gained a credit rating. S&P and Moody's gave the emirate long-term sovereign ratings of A and A3, respectively. Sharjah has so far said it has yet to decide whether to tap debt capital markets for a bond.
But the relative strength of sovereign ratings in the GCC was important in underpinning the financial health of the stable of government-linked firms, said Mr Anderson.
A significant chunk of obligations for companies falling due this year is expected to tempt some companies to replace at least some with new debt. Tightening spreads on bond yields in recent months have also added to the attractiveness of debt sales for potential first-time issuers.
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