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28 February 2024

UAE urged to encourage bond market

Bonds are considered to a safer investment than equities (SUPPLIED) 

By Nadim Kawach

The UAE needs to create a bond market to ensure enough liquidity for investors following the credit crunch caused by the global financial crisis, said Tom Healy, Chief Executive Officer of Abu Dhabi Securities Exchange (ADX).

Healy said the government needs to encourage the creation of such a market by issuing bonds, which he described as a safe investment.

Quoted by the Dubai-based magazine Money-Works, Healy said ADX has always encouraged the establishment of a bond market in the country, which has the Middle East's second largest combined stock market after Saudi Arabia.

"Its importance becomes apparent when liquidity is tight. At the moment, the only real source of liquidity for people is the stock market. Ideally, the establishment of a domestic bond market should be driven by the government. Government bonds provide a benchmark for and encourage commercial bonds," he said.

Healy said the creation of the Gulf's first bond market in the UAE would give investors the "opportunity to diversify their portfolios as these bonds are considered less risky than equities".

The UAE had seen a wave of bond issues through 2007 and most of 2008 before the activity sharply declined due to the global financial crisis.

The issuance was conducted through the local stock market and some banks while other companies included world markets in their bond issues.

Over the past two years, the giant real estate developer Aldar has been one of the largest bond issuers, with a total bond value of more than Dh40 billion. The government-controlled Taqa company was also a major bond issuer, releasing more than Dh10 billion of conventional and Islamic bonds.

In late 2008, UAE bourse authorities sought to organise bond operations when they told listed firms to get prior credit rating before issuing bonds within measures intended to ensure safety for investors and prevent market turmoil.

The UAE Securities and Commodities Authority (SCA), which supervises the Abu Dhabi and Dubai bourses, issued a circular stipulating that any listed company must obtain credit rating from the Authority before issuing bonds. It excluded government institutions from the new rules.

The circular covered both traditional and Islamic bonds (Sukuk) and asked potential bond issuers to ensure such rating must be obtained in advance from an authorised credit rating agency.

The circular followed a surge in bond issue by many companies in the UAE, including Aldar Properties, Taqa, the National Bank of Abu Dhabi, Abu Dhabi Commercial Bank and other firms. Several other institutions have spoken of plans to issue bonds or sukuk."