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04 March 2024

Bonds best shot in the arm for Dubai confidence

Arif Alharmi, CEO Amlak Finance (SUPPLIED)

By Staff Writer

The Dubai Government's $20 billion (Dh73.4bn) long-term bonds programme is being viewed as just the stimulus needed for confidence to return to the UAE economy.

Across the business, finance and industry sectors, corporate and research heads have welcomed the initiative as one that will put to rest any speculation about Dubai's resources and the long-term viability of the UAE as an emerging hub of business.

"We view the decision of the Government of Dubai to launch the $20bn bonds as another step in the right direction, which will further the confidence in the local market and its various sectors. The timing for this launch cannot be more critical at this stage where the market, especially the real estate and financial sectors, are facing numerous challenges from the major global financial crisis to sustain their growth and prosperity," said Arif Alharmi, Chief Executive Officer, Amlak Finance.

"Launching the bonds at this stage and the immediate response from the Central Bank to subscribe to the first issuance of $10bn are yet another testimony to the wise decisions and forward planning that are being undertaken by our wise leadership."

Mohammed Al Habbai, Dubailand's Senior Vice-President, said: "The $20bn bond issue by the Dubai Government will bring in more liquidity in the system and particularly help build market confidence. Overall, it is a big step during a time when the global economy is passing through a rough phase."

According to Nasser Saidi, the Chief Economist of the Dubai International Financial Center: "The bonds will allow the Central Bank to set up a government bonds and sukuk market. The Central Bank had lacked during last period the financial tools, which allow it to intervene in the market to withdraw or pump liquidity. Consequently, the new bonds will lead to the appearance of open market operations in terms of the selling and purchase of government bonds.

"Secondly, the new bonds will allow companies to price bonds and sukuk, which they will offer through Dubai Government's bonds index. Thirdly, the issuance of the bonds will allow Dubai to complete its construction and infrastructure projects, as the emirate will be provided with sufficient liquidity to finance its projects.

"The new bonds are very important and will be a step to set up a regional market of government bonds, which we are in an urgent need for it, especially during the international financial crisis," Saidi said.

Ziad Makhzoumi, CFO of Arabtec Holding, said the announcement will provide an immediate relief to both credit and equity markets in the UAE, and will alleviate the liquidity squeeze in the economy. "The Dubai vision is alive and well," he said.

Samira Abdulrazzak, CEO of Dubai Infinity Holdings, believes the bond issuance signals "the strength of the relationship between local and federal governments".

Avi Bhojani, Group Chief Executive, BPG Group, said: "While no country is immune to the current situation, Dubai has decided to take on the challenge head-on in its own inimitable way. This is a welcome and timely respite for the financial, retail, real estate and tourism sectors, and will encourage them to focus on stimulating growth to emerge from the present scenario in a stronger position. As boosting consumer confidence is the need of the hour, the marketing services industry expects such positive initiatives not just from the government but from industry captains as well."

GCC economist Dr Mohammed Al Asumi said the bonds initiative sends "a strong message" to international markets that the economic and fiscal position in Dubai and the UAE "is strong and that liquidity is abundant".

Dr Ahmed Al Janahi, Deputy Group CEO, Noor Islamic Bank, said: "Borrowing from local and foreign markets is a natural and regular measure done by top economies to finance their development projects and meet their financial needs. The average value of loans taken by the British Government from local and foreign markets is estimated at $1.2 trillion. This aimed to serve its local economy and cover financial needs, which are necessary to finance development projects."

Al Janahi said the Central Bank's subscription to $10bn worth of the bonds will give global financial institutions the confidence to purchase the remaining bonds.

Mark Mitcheson-Low, Regional Managing Director of Woods Bagot, said the construction industry needed some kind of stimulus, especially for ongoing projects. "Everyone has been waiting for some kind of an injection of confidence into the market. There has been a slowdown on payments to consultants, contractors and sub-contractors on various projects. So this has come as a relief. It will take a while for this money to trickle down to the projects but this is a good start."

Another industry captain, George Berbari, CEO at DC Pro Engineering, said: "The current economic situation was affecting the developers, the consultants, the contractors and the suppliers. What resulted was a chain reaction, which should hopefully improve when the cycle resumes with this move. We hope that the banks will start lending again and the money cycle will commence soon."

From the legal perspective, Mohammed Yousuf A Sulaiman, Deputy Director for Dubai Courts and Cassation Court's Senior Judge, said: "When the economy is down, people tend to have a number of legal concerns and hence we welcome this move from the government that will see confidence and faith come back into the market."

Raju Menon, Managing Partner, Morison Menon Consulting, said: "Though this takes care of only a part of their debt, government-linked companies will now be able to restructure to weather the economic storm. Also, it is a shot in the arm as sentiment on stock markets will now turn positive. Once the confidence level increases, the chance of a quick revival is high."

Ashok K Gupta, Chief Executive, GCC Operations, Bank of Baroda, added: "The bond programme will help improve liquidity and boost government spending. With the cost of infrastructure development being quite affordable at the moment, the economy is expected to benefit in quite a big way."

Kirit Kanakiya, Chairman of BSEL Infrastructure Realty, said: "As a real estate developer in Ajman, the Dubai Government's $20bn bond programme is welcome news. It brings confidence to the finance, real estate, infrastructure, tourism and oil and gas sectors. There are three key messages: One, Dubai and the rest of the emirates including Abu Dhabi are all in it together. Two, Dubai will not be allowed to succumb to liquidity issues. And three, the development programmes under way in Dubai will now go ahead full steam."

Ali Asgar Mir, Managing Director, Ikon Advertising and Marketing, said: "It is a befitting answer to all the critics of Dubai and the UAE. Now that the projects can be completed and the contractors will be paid, the money will filter down to the working population. You will see the results faster than expected."

Abdulla Al Gurg, Project Director, The Tiger Woods, said: "The move provides a framework for the way forward. It is a definite boost for Dubai's economy."

Abdulla Saleh, Senior General Manager and Group Chief Operating Officer at National Bank of Abu Dhabi, said: "The value of the bonds, $20 billion, is certainly big. So, it will meet the government's needs for liquidity to fulfill its commitments and complete development projects. The rate is very reasonable."

Dr Mohammed Afifi, Director of Research at Abu Dhabi-based Al Fajr Securities, said: "The subscription by the Central Bank erased all worries over the future of Dubai and will have positive reflections on companies listed in Dubai and Abu Dhabi." Dr Afifi believes the second tranche of the bonds should not be launched immediately.

"In case the second tranche is launched, I think there will be big demand by global companies."

Breather for ratings

The news of the Dubai Government's $20 billion bond issue is "clearly supportive for the ratings" of the six Dubai companies rated by Moody's Investor Services, the firm said in a statement yesterday.

The six companies are: Dubai Holding Commercial Operations Group (A1), DP World (A1), DIFC Investments (A1), Dubai Electricity & Water Authority (A1), Jebel Ali Free Zone (A1) and Emaar Properties (A3). The ratings of these firms were placed on review on February 2.

According to Moody's, statements carried by Wam suggest that there will be no restrictions on how the Dubai Government uses the proceeds from the bond.

"Our assumption of a high likelihood of direct or indirect financial support for Dubai companies from the federal government forms a core pillar of our ratings.

"This support is positive from a ratings perspective," said Moody's.