New rules issued by the United Arab Emirates’ (UAE) securities and commodities authority (SCA) could help the country become a regional hub for bond and sukuk issuance by smaller corporates, says Fitch Ratings.
The credit ratings agency (CRA) says that if successful among UAE companies, the new regime could attract issuers from Qatar, Oman and Kuwait that want to diversify and extend the duration of their financing, and also spur other regional markets to make their own reforms.
Fitch notes that corporates in the UAE and other Gulf Cooperation Council (GCC) countries mostly depend on short-term bank loans for their funding. Local-currency bond issuance is limited and currently only blue chip corporates can afford to issue bonds in the international market.
The new rules attempt to open up bond and sukuk markets to smaller issuers by cutting the minimum issue size to 10m dirhams (AED) – equivalent to US$2.7m/£1.67m – down from a previous floor of AED50m.
The SCA also plans to shorten the time it takes to review and approve issuance applications to five days, while private placements of bonds not listed on the UAE securities exchanges will not need SCA approval. Issuers of bonds and sukuk now only need to make financial statements annually, instead of quarterly. This relaxation of reporting requirements will make the process more efficient but reduces the information available to investors.
However, the effectiveness of the new rules, which do not apply to government bodies or state-owned companies, will depend on successful implementation and building a track record in this segment, Fitch concludes.
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