beyondbrics

Welcome to the UAE’s bond rush. With confidence in the emirates returning but local banks reluctant to lend, UAE entities – sovereign and government-related – are lining up to issue bonds and their Islamic equivalents.

Investor appetite for them looks strong: a clear sign that the UAE’s rehabilitation is continuing less than a year after Dubai World came to the brink of default. But the central bank’s governor has also issued a stern note of caution.

Last week the government of debt-laden Dubai launched a $1.25bn bond issue and on Wednesday it emerged that the emirate’s utility company is raising more money via a twin set of sizeable dollar bonds.

This came amid reports that Abu Dhabi’s International Petroleum Investment Company (IPIC), the energy investment vehicle that has spread its wings into other sectors recently, is also looking to raise funds.

Some entities are coming to the market in a fragile state; stronger ones are looking for cheap money. Either way, sovereign issues have been oversubscribed.

But perhaps mindful of the huge damage Dubai World’s debt restructuring did to the country’s reputation, Sultan al-Suwaidi, the central bank governor, issued a stern note of caution on Wednesday: he said that a newly-formed federal government debt office should be monitoring the issuance of debt by entities in the UAE.

“Ideally it should be controlled by the federal debt management office, so not for us, but they have to manage these initiatives so that it wouldn’t have to deal with issues in the future,” he said on the sidelines of a meeting of the Association of Corporate Treasurers in Dubai.

The UAE debt management office was formed last year. Both oil-rich Abu Dhabi and debt-heavy Dubai also have their own emirate-level institutions aiming to manage the maturities profiles of each emirate.

Yet it remains unclear how these bodies interact with one another.

Suwaidi is a longstanding, old-school Gulf central banker who issued plenty of cautionary words during the property and credit bubble that engulfed the UAE before exploding in 2008.

The uncontrolled debt frenzy embarked upon by Dubai’s myriad agencies back then has made its road to recovery all the harder.

Suwaidi’s call comes amid plans for the UAE to pass a debt law, the draft of which stipulates that public debt should not exceed 15 per cent of gross domestic product.

It is not only Dubai entities that are expected to tap bond markets this year. In Abu Dhabi, other government-related entities in addition to IPIC are expected to pile into global markets imminently.

Abu Dhabi’s oil-flushed government, which has a strong credit rating, tapped markets in April last year.

Although both Abu Dhabi and Dubai have their own debt management offices, Dubai has also traditionally enjoyed a fair amount of independence – even if that is diminishing in the aftermath of the $20bn in loans it has taken from the federal and Abu Dhabi governments to stave off default.

Synchronisation of debt issuance can only be a good idea as the UAE’s various entities look to the capital markets once more.

Suwaidi, like a concerned father, is reminding the kids that good ideas, even if accepted, still need to be implemented.