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23 May 2024

Dubai launches $20bn bonds

His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai

By Yazad Darasha and Eudore Chand

The Dubai Government yesterday launched a $20 billion (Dh73.4bn) bond programme as part of its long-term financing strategy.

The bond is being issued in two tranches, the first of which, valued at $10bn, has been fully subscribed by the UAE Central Bank. The unsecured bond pays a fixed yield of four per cent per annum and has a five-year maturity, said a statement from the Department of Finance.

"This issuance will provide Dubai Government with the necessary liquidity to substitute the liquidity that has dried up globally in the past 12 months and meet all upcoming financial obligations," the statement said. The Long-Term Bond Programme will "secure the necessary funding" for Dubai to meet its financial obligations and "continue its development programme", it said.

Corporate heads welcomed the news, saying this would give Dubai the much-needed breather to put in place plans that will stabilise its economy and kick-start growth.

"It is a good day for the UAE," Sheikh Khaled bin Zayed Saqr Al Nehayan, Chairman of Tamweel and Bin Zayed Group, told Emirates Business. "The move has cleared some of the ambiguity about the future and the negative rumours about the economy such as the ability to pay, the fundamentals and the strength. Clarity about the future is very important for business, the community and for investors in the region," he said.

"The financing will give Dubai the much-needed breathing room and flexibility to stabilise."

Sheikh Khaled added that the bond "will clear the way for more focus on some of the stimulus programmes to bring back the growth so that the engine of economy works again after it had slowed down for a while".

"The move demonstrates how important the relationship between the emirates is and that this is in the best interests of the country. Our country was built on unity and a crisis like this demonstrates that our unity is very strong," Sheikh Khaled added.

Dubai has dealt calmly with the impact of the global credit crisis and the consequent economic challenges. Last week, it raised $2.5bn from global and local banks to refinance the loan taken by Borse Dubai to complete the Nasdaq Stock Market-OMX-London Stock Exchange deal.

Investment Corporation of Dubai raised $6bn in a syndicated loan in November, part of which it used to meet the Borse Dubai payment. The Central Bank has announced two packages worth a total of Dh120bn to inject liquidity into the UAE banking sector as a means of restarting credit expansion.

"The bond will give government entities access to the funds needed to complete what has been started in Dubai, to meet the commitment of finishing all infrastructure projects," said Zabeel Investments Executive Chairman Mohammed Ali Al Hashimi.

Dubai's largest corporations have used cash to refinance or pay down maturing loans in the past three months as lenders raised interest margins. DIFC Investments and Dubai World are among the companies that paid off loans because the refinancing spreads were high in the last quarter of 2008.

Analysts expect that the UAE financial and stock markets will greet the news of the Dubai Bond with optimism, the way they reacted to the Borse Dubai refinance.

Shares in Dubai reacted with a four per cent jump on Thursday, and analysts believe this can be repeated today.

The cost of insuring Dubai's debt in the credit default swaps market fell 50 basis points to 950 basis points, also on Thursday. The loan deal was seen as a test of the ability of Dubai's state companies to refinance their own debt.

"The world is going through some extraordinary times and this has impacted Dubai too. You hear people these days saying things like: 'Dubai has grown too fast'. Six months ago, you would not have heard such statements," Al Hashimi said. "Global economic events may have put us in a corner, but this development proves that we will fight for ourselves and continue to grow," he said.