More policy initiatives to infuse liquidity expected

The Dubai Government's $20 billion (Dh73.4bn) senior unsecured bond initiative has brought clarity to the situation and dispelled any fears lingering in the minds of global investors, analysts told Emirates Business yesterday.

"The five-year bonds paying four per cent have created a strong basis for continuing economic and business growth in the emirate," said Sanjay Uppal, Chief Financial Officer at Emirates NBD. "More importantly, the news has dispelled all rumour and uncertainty regarding Dubai's resource position and clarified that the UAE acts as a cohesive federation to support the economy," he said.

Dr Eckart Woertz, Program Manager Economics at Gulf Research Center, added: "It is important for the federation to ensure that Dubai's growth is sustained.

"Repayment pressures will depend on how the cash is deployed and at what yields. At the end of the day, it is better to owe $10bn to the Central Bank than to international investors," Dr Woertz said.

Agreeing that it is "excellent news", Edward Quinlan, UAE Country Partner at Ernst & Young Middle East, said: "It is… a win-win for everyone. Most central banks like to hold local government bonds as they increase the monetary tools at their disposal. It is also great to see an emirate issue government bonds as it helps to develop the capital markets within the UAE."

Analysts expect that the UAE holds more policy aces up its sleeve, and will play them when the time is right.

"Policymakers are acknowledging the challenges and are discussing ways to mend the situation," Marios Maratheftis, Regional Head of Research at Standard Chartered bank, wrote in an e-mailed statement.

"We expect further policy actions to ease liquidity. The launch of the Dubai bonds is another move by the government to assure the markets that the emirates are working together," Maratheftis said.

A government official told Zawya Dow Jones that Dubai is now in a stronger position to renegotiate its debt. "We will refinance upcoming debt as usual... but this time from a stronger position," said the official, who asked not to be named.

The new funds will act as security and will be used whenever needed, removing all doubt on the ability of Dubai to service its debt in the short- and mid-term, he added.

"I have always believed that the authorities were quietly very active behind the scenes and would make such an announcement when they had something of real substance to report to the markets," said Quinlan. "I am confident that there will be a regular flow of similar good news in the near to mid-term. I believe those who may have doubted Dubai will continue to be surprised by the sheer scale and innovative nature of the measures available.

"It is now up to the private sector to show similar imagination and to respond. Dubai and the UAE can be insulated to a very great extent from the crisis that is continuing to worsen globally," Quinlan said.

Shady Shaher, Mena market research economist at Standard Chartered, added: "The bond programme by the Dubai Government is exactly the kind of move that we had been needing at this time. It covers all the financing requirements for the upcoming year. This bond programme would also infuse confidence in the economy."

Philippe Dauba-Pantanacce, senior Mena economist at Standard Chartered said the launch of the Dubai bond programme would bring in "more certainty and clarity amid the present economic scenario where it is much needed". It would also, he said, alleviate a lot of the lingering fear about the UAE economy in the eyes of foreign investors.

"The launch of the bond is proof of the co-ordination between Dubai and the federal government," he said.

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