Dubai's $4bn bond to spark boom in local market

Dubai's decision to raise $4 billion through dirham-based bonds will likely spark a boom in the market with local businesses shunning riskier dollar-based debt, Mashreq Capital’s CEO has told ArabianBusiness.com.

Dubai announced on Monday it plans to borrow as much as 15 billion dirhams ($4.09 billion) to help finance development of its infrastructure and will begin roadshows for the first phase of a medium-term-note (MTN) programme.

“In the UAE, there is a rapidly growing dirham bond market and that [the MTN programme] is going to alter the market dynamics,” Abdul Kadir Hussain said in an interview on Wednesday.

“Traditionally local banks have struggled to obtain assets in local currencies and have tended to invest in dollar assets, a riskier proposition," he added.

Hussain said the MTN programme could mark a change in the way local banks view their fundraising capacity, with them beginning to tap the potential of the growing local bond market.

“With the advent of the dirham bond market, there is a significant asset class that these banks can invest in,” he said.

“The move by the Dubai government sets an important benchmark so that other corporates can come in and raise money in a similar way.

“It makes sense to raise debt in dirhams, and now they have a benchmark."

Hussain said the precedent set by the government would lend more transparency in terms of valuations for both the issuer and the investor with a clearer gauge for appropriate pricing.

Dubai, a Gulf tourism and trade hub, is seeking to achieve economic growth of 11% per year through to 2015 and is making massive infrastructure investments to facilitate this growth.

According to London-based magazine Middle East Economic Digest (Meed), the UAE accounts for more than $1 trillion worth of projects.

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