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14 April 2024

Dubai's turning point


By Sean Davidson

A $20billion (Dh73.4bn) unsecured bond programme issued by the Government of Dubai indicates a return to "business as usual" and heralds the first steps towards recovery, financial experts told Emirates Business.

"The bonds programme will go some way to restoring confidence in the UAE and showing expatriate workers it is business as usual in Dubai," said Dan Healy, Chief Executive Officer of market research company Real Opinions.

Independent financial analyst Martin Kinsey said such intervention would bring temporary respite to the UAE's markets, which are heavily dependent on global factors. "It's all about what happens in the USA and Europe," he said. "We haven't seen the bottom yet. Market recovery will be based on the property market resurgence in US and Europe. And I think it will take two years to start posting continuous growth," said Kinsey.

Dubai-based economist Armen Papazian was more optimistic and said the bonds issue was "very good news".

"Central Bank participation is encouraging and will bring more confidence to the market," he said. "These funds will play a critical role in ensuring that debt obligations are met. Moreover, if used to support domestic expenditure, they will stimulate aggregate demand. It is an important precedent."

As part of a long-term financial strategy, the sovereign bonds issue was announced earlier this week. A first tranche of $10bn has been fully subscribed by the UAE Central Bank. The unsecured bond will pay a fixed yield of four per cent per annum for five years.

Khalid Bin Kalban, Managing Director and Chief Executive of Dubai Investments, said: "This move will help stop rumours about the inability of the government to settle its liability and help the economy bring the trust back to the investors about this market. Going forward we need more steps from the government to help all sectors and industries of Dubai."

Looking to future government support packages, Papazian made an appeal for dirham bonds.

"The main reason behind a dollar issuance might be the fact that the proceeds of these bonds are to be used for dollar debt repayment.

"Alternatively, if the proceeds are to be spent domestically, the dollar issuance is equivalent to a dirham issuance under the current dollar standard used by the Central Bank. The next challenge is to issue dirham bonds or Islamic instruments, and use them to back currency issuance," he said.