UAE’s planned dirham T-bonds is key to develop debt market, diversify funding

UAE’s planned dirham T-bonds is key to develop debt market, diversify funding

The UAE government’s planned launch of its first dirham-denominated treasury bonds is an important step as it is a key enabler for the development of the nascent domestic Debt Capital Market (DCM) and supports funding diversification initiatives, said Fitch Ratings in a note on Tuesday.

The UAE said last week it plans to launch next month its domestic dirham-denominated treasury bonds with a benchmark auction size of 1.5 billion dirhams ($408 million). The first auction date, to be held in May 2022, will be followed by a series of periodical auctions.

The planned dirham T-Bonds will be issued initially with tenors of two, three and five years, to be followed by a 10-year bond. The debt law of 2018 allows the UAE federal government to issue debt in any currency.

According to Fitch however, there needs to be further development in the areas of regulation, financial incentives, adequate infrastructure, deeper liquidity, active secondary market and in attracting more participants.

"Additionally, a key hindrance to the domestic DCM growth includes a corporate funding culture in the UAE and the GCC at large which is geared primarily towards bank financing rather than bonds or sukuk."

The T-bills offering will also open the way for corporates and financial