UAE expects first federal bond to be around $1bn

The UAE expects its first ever federal sovereign bond issue to be around $1bn after a public debt law is approved, a senior finance ministry official on Tuesday was quoted as saying.

The UAE's top advisory council passed a new public debt bill in December 2010, aiming to establish a local debt market in one of the world's top five oil exporters, but the legislation is still awaiting presidential approval it needs to become law.

Younis al-Khouri, undersecretary and director general at the UAE Finance Ministry, did not say when the public debt bill was expected to be signed but he told Alrroya newspaper that a framework for the debt management office's operation will be launched next month.

He expected the interest rate paid to bondholders to be around 1.2 percent and said government bonds would be issued at intervals to help finance infrastructure projects.

Khouri was not immediately available for comment when contacted by Reuters.

Local media last week quoted Khouri as saying the ministry would submit its debt issuance strategy to the cabinet within the next two weeks.

The ministry has gradually shifted expectations over the past year about the timing of its planned bond issuance.

In June 2011, UAE Financial Affairs Minister Obaid Humaid al-Tayer told Reuters the UAE may issue its first federal bond toward the end of 2012 with the debt bill then expected to be signed in the summer of 2011.

The UAE central bank governor said in the same month the Gulf country - rated Aa2 by Moody's - needed to double efforts to create a local market for government and corporate bonds as it lacked sufficient government debt instruments.

Some of the OPEC member's seven individual emirates have already sold government debt, including Abu Dhabi and Dubai, whose state-linked firms also borrow, and analysts have said federal issuance would help spur the local currency debt market.

The new public debt law would limit UAE government debt to 25 percent of the Gulf country's gross domestic product, or AED200bn ($54.5 billion).

Khouri also urged governments in the UAE member emirates to open local debt offices if they wanted to enter the bond market.

He said that the UAE government was not planning to impose any direct or indirect taxes in 2012 and 2013, adding that the six Gulf Cooperation Council states were still discussing principles to implement indirect taxes.

The UAE federal budget deficit touched AED1.2bn at the end of September but was expected to shrink in the whole year, Tayer said in October. The country plans to spend AED41.8bn at the federal level this year, roughly the same as expected for 2011.

The federal budget accounts for roughly 13 percent of total government spending in the UAE, the world's second-largest Arab economy, with the most occurring at the level of individual emirates, mainly in oil-rich Abu Dhabi.

Abu Dhabi's contribution to the 2012 federal budget is around AED14.28bn, or 34.5 percent of the total projected income, Khouri also said.