Business | Banking
Bonds will boost confidence in UAE economy
Liquidity infusion will immediately diminish risk in financial system and restore fundamentals in markets.
- By Suzanne Fenton, Staff Reporter
- Published: 23:47 February 23, 2009
Dubai: The Dubai government on Sunday launched a $20 billion long-term bond programme. The UAE Central Bank subscribed half of this, a total amount of bonds worth $10 billion.
Since the bonds were announced on Sunday evening, Dubai shares have surged, signalling a relieved response from the market.
Analysts and economists believe the bonds will help Dubai's economy across the board as they will diminish risk of Dubai and UAE economies and restore confidence in the market.
And most say the move is a positive one and one that will restore much-needed confidence in Dubai.
Meanwhile, in his reaction to WAM, Federal National Council Speaker and Chief Executive of Mashreqbank Abdul Aziz Al Ghurair said, "The world should know there is confidence in the UAE leadership and the country is confident about its economy and financial institutions. The world can deal with the UAE as it used to do six months ago".
He said the Dubai government's move to launch the long-term bond programme coincides with the step taken by the UAE Ministry of Finance to transfer Dh50 billion to the banks and Abu Dhabi government's injection of Dh16 billion in its banks, as well as success of Dubai Bourse in refinancing the loan worth $2.5 billion, reiterating that "these are positive indications to the sceptics about the credibility and strength of the UAE economy".
Senior officials spoke to Gulf News yesterday to give their reactions from the news. "As far as the Central Bank is concerned, this now provides one of the instruments of monetary policy," Nasser Saeedi, chief economist, DIFC, told Gulf News.
"This will now make it easier to control money supply and manage liquidity. Across the world, when central banks buy government securities, it means they are injecting liquidity.
"It will help us to build debt markets in the UAE which is very important at this stage, particularly as we now start building bond markets and sukuk markets for the sovereign and corporate sector," he said.
"This is a way for us to finance projects, either private or public sector and a possible alternative to equity finance. Equity finance isn't so attractive to investors, so now people are turning to government securities and cash," Saidi said.
"It's a very welcome move. Dubai, the UAE and other emerging markets, as a result of the global financial crisis, capital and debt markets are closed and yields are increasing at a high rate therefore access to these markets is very restricted. This is another reason why we must focus on developing local capital and debt markets," he said.
Barmak Besharaty, managing director, Almas Capital, said: "There is a lot of nervousness regarding Dubai as it's been having to stand on its own. This is a positive signal to the marketplace that the government is willing to look after all (emirates). It has come a tad too late but they were probably trying to look at all options to try and figure out the exact amount needed.
"The important thing to keep in mind is what Dubai is going to do with the cash. Will Dubai continue on a massive spending spree, pay off debts or continue with projects?
"I think the wisest move is to see what is necessary right now, which is debt repayment. This will give the rest of the world a good comfort level in Dubai and the UAE," Besharaty said.
Salaam Al Shaksy, chief executive officer of Dubai Bank, said: "The issue will serve as a springboard for the acceleration of economic activity and restoring global confidence in the overall economic stability and growth outlook of the emirate. It is an important positive step that is in line with the long term financing strategy of the Dubai government.
"The subscription of the UAE Central Bank to the first issuance of $10 billion is also a clear demonstration of the UAE's unified and timely response to the global financial crisis and its ability and resolve to overcome the challenges it is currently facing," Al Shaksy said.
Hamad Bu Amim, director general, Dubai Chamber of Commerce, said: "The issue is about confidence and this decision will bring back confidence, to local and foreign investors who require it, in the economy of Dubai."
Mohammad Ali Al Hashimi, chief executive of Za'beel Investment Company, said the launch of the bond programme "is a sound decision amid circumstance being witnessed by the market and reserve of the banks to offer the financial facilitations".
Shaikh Nasser Al Mualla, chief executive of Bank of Umm Al Quwain, said the launch of bond programme by Dubai government and gesture of the Central Bank to finance half of the bond programme "is a clear message to the sceptics who try to divide the UAE into seven emirates. These bonds show the UAE is one country under one government, which operates in a dynamic consonance to face challenges".
Nabeel Al Yousuf, director general of Dubai Executive Office, said the decision taken by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, would boost confidence in the UAE economy in general and the Dubai emirate's economy in particular.
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