Dubai launches $20 billion bonds

Dubai: The Government of Dubai announced a $20 billion bond programme on Sunday to fund its various financial commitments and spending programmes.

The first tranche of the issue amouting to $10 billion or 50 per cent of the bonds programme was subscribed by the UAE central bank, said a press statement from the Department of Finance, Government of Dubai.

"As part of its long-term financing strategy, Dubai Government today launched a $20 billion long term bond programme, the first issuance of which, amounting to $10 billion, was fully subscribed by the Central Bank of the UAE. The bond is an unsecured fixed rate paper yielding 4 per cent per annum and has a five-year maturity," Department of Finance said in an emailed statement.

As part of the global financial crisis and liquidity crunch, several businesses and government entities were facing liquidity shortage. The bond programme is expected to meet the short to medium term capital requirements of several undertakings in the emirate.

"This issuance will provide Dubai Government with the necessary liquidity to substitute the liquidity that has dried up globally in the last 12 months and accordingly meet all upcoming financial obligations. This program will secure the necessary funding for Dubai to meet its financial obligations and continue its development programme," said the Government Statement.

Economists and senior finance professionals welcomed the move. "It is a clear sign that that Dubai is getting Federal support. It was widely expected and it will send out a strong signal to the financial markets that Dubai is capable of meeting its financial obligations. Additioanlly, the new bond programme will also help Dubai to support its spending programme," said Monica Malik, an economist with EFG-Hermes, a regional investment bank.

In November last year Dubai Advisory Council had estimated that Dubai's sovereign debt obligations at $10 billion, and sovereign assets of more than $90 billion. While the debt obligations of government owned companies were placed at $70 billion, their combined assets were estimated at $260 billion.

Analysts and economists said on Sunday that the move to fund liquidity through a sovereign bond issue is expected to put to rest a lot of speculation about the financial health of Dubai's economy. "It (bond issue) is a bold move to fund the short to medium term liquidity requirements. While it will bring in money to fund several ongoing projects, it will also put to rest a lot of malicious media propaganda against Dubai and the UAE that was going on in the recent months," Dr Mohammad Al Asoumi, a Dubai based economist.

Despite the extreme shortage of liquidity in the international markets, some of the Dubai government entities have been raising money from banking entities.

Last week, in a loan refinancing deal, Borse Dubai Limited has raised $2.5 billion from a group of foreign and local banks and investors.

"The bond programme sends out the signal that the UAE is single economy and is built on solid foundations to withstand global crises of the nature we are currently facing," said Al Asoumi.