The UAE Central Bank wants bankers to work out a plan for developing a local debt market to allow business to raise funding locally and complement an existing equity market.
In a circular sent to banks last week, the UAE Central Bank sought nominations for a committee to devise a strategy for building such a market, two bankers told Reuters.
Deepak Kohli, head of capital markets for Middle East, North Africa and South Asia, Standard Chartered bank, said: "The cornerstone for the development of a local currency bond market is the creation of a risk free yield curve resulting from government bond issuance," adding the initiative was very timely and could significantly help the economy as a whole.
Problems in the emirate of Dubai, whose flagship state conglomerate Dubai World is seeking to restructure its multibillion dollar debt, have coloured the attitude of investors to the region.
However, the Dubai problems are mainly related to bilateral and multilateral bank loans and are not shared by other emirates and countries in the region, which have oil and gas revenue to back their funding.
The bond market in the UAE and the region has remained undeveloped because the region is made up of mostly cash rich governments with huge oil revenues and little need to borrow.
The current funding structure in the region is premised on bank finance and finance from the international markets.
The dislocation in global markets in the last few years has reduced avenues for regional borrowers to tap financing.
The Abu Dhabi banker, who asked not to be named, said: "What perhaps the Central Bank is aiming for is to put in place a structure to streamline the debt capital market, to set a benchmark for government to issue bonds and have a curve for people to price off."
Sovereign bond issuances can create benchmarks against which corporate issuers in the region will be able to price their own debt, he added.
Central Bank officials did not return calls. (Reuters)For all the latest UAE news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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