Wednesday, May 11, 2011

UAE Public debt law - in final stages

The United Arab Emirates should soon approve a law allowing the oil producer to issue its first ever federal sovereign bonds and create a local debt market, a finance ministry official said on Tuesday.
The long-awaited law, regulating issuance and the amount of debt the world's No3 crude exporter may accumulate, awaits a presidential nod after the UAE's top advisory council passed the bill in December.
"The public debt law is now in final stages for approval and as for the ministry of finance it has already started taking measures after the cabinet's resolution to establish a public debt bureau," Nadia Sultan told a conference in the UAE capital. "It is hopefully very soon," Sultan, an officer in charge of establishing the federal public debt management office, later told Reuters.
The legislation would limit UAE government debt to 25 per cent of gross domestic product, or Dh200 billion ($55bn). The International Monetary Fund projects that UAE government debt, including that of some of its seven emirates, to fall to 16.4 per cent of GDP this year from 21 per cent in 2010.
The federal debt management office is expected to coordinate future issuance with the individual emirates, which until now have been issuers of sovereign bonds in the Gulf Arab country. Sultan also said an issuance plan has been under consideration but neither she nor other finance ministry officials attending the event gave more details, saying the process was still at an early stage.
The UAE minister of state for financial affairs said on Saturday that the Opec member -- rated Aa2 by Moody's -- had no plans to issue a sovereign bond this year but it could do so at the beginning of 2012 if needed.
Saif Hadef Al Shamsi, senior executive director at the central bank's treasury department, told the same event that the ministry should coordinate debt issuance with the central bank as local bonds would drain liquidity from the market. "Any issuance over one year will be handled by the finance ministry," he said. "A problem lies in the legislative field ... as the central bank cannot sell short-term bills to people outside of commercial banks."
FNC approved public debt law in December 2010

The Federal National Council has passed public debt law on Tuesday December 2010, marking a key step toward the issuance of the Gulf Arab state's first sovereign bond.The legislation, which needs presidential approval to become law, limits government debt to 25 per cent of the country's gross domestic product, or Dh200 billion ($54.45 billion).
An earlier version of the legislation discussed last year had said public debt should not exceed 45 per cent of GDP, or Dh300 billion.
The bill provides a legal framework for creating a government bond market in the UAE with public debt instruments traded on one or more of the country's three financial markets."The bottom line is that the country needed the law not just to plan for a sovereign bond issue but also to revive the local currency debt market," said Abdul Kadir Hussain, chief executive of Mashreq Capital."As such, it is a positive start and hopefully it will help develop a local bond market in the region."

The UAE has said it will consider a federal bond after the passage of the debt law and the creation of a debt management office.Under the new law, the UAE will create a public debt bureau to advise the government on debt issuance and work with the central bank on issuing and selling government bonds and other financial instruments.
"What's the use of the public debt bureau if it doesn't monitor all government guarantees and any government debt?" said Obaid Humaid Al Tayer, minister of state for finance.The law also stipulates that debt issued for infrastructure projects should not exceed 15 per cent of public debt.
The country will look at a range of options, including using existing reserves or returns from government investments to finance a budget deficit of around Dh3 billion ($816.8 million) for 2011, Al Tayer said.

"We will study the budget's revenues," Al Tayer said. "The council has approved the public debt law, but I don't say that we will do this thing or that before we discuss the options in the cabinet."

The minister said returns from the Emirates Investment Authority (EIA), a sovereign wealth fund that manages the federal government's stakes in a number of key corporations including the Gulf's second biggest telecoms firm Etisalat, could be also used to cover the deficit.When asked if the UAE would issue bonds to finance the deficit, Al Tayer said, "only if necessary, it has not been discussed up to now".
Debt laws will put UAE in strong position to raise global finance
New laws on government debt and bonds will make it easier to raise cash, say analyst’s .The new UAE laws on government debt and corporate bonds will make it easier to raise finance for massive projects that are in the pipeline as the country renews its commitment to infrastructure development as a means of fuelling economic growth, analysts said.They also facilitate the job of international evaluation and standardisation of institutions to make possible an accurate classification of the UAE for rating purposes.

The UAE Government can now obtain loans from abroad of up to 45 per cent of the country's gross domestic product (GDP), or less than Dh300 billion, after the Federal National Council passed a law to regulate public debt last week.
The regulation also allows local governments of individual emirates to obtain loans that do not exceed 15 per cent of their GDP. The law comes after two years of work that involved senior consultants of the World Bank and a number of international financial experts.Last week, the FNC also passed other laws related to guarantees of deposits, bonds and public debt.The new measures are being seen as key contributors to a comprehensive, integrated fiscal legislation in parallel with the fast-paced growth of the country's economy.