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UAE to auction T-bonds worth Dh1.5b in May

The latest treasury bond issue comes in the wake of the first federal bond launched in October 2021 after the government passed a law in 2018 allowing the federal government to issue sovereign debt for the first time to finance infrastructure projects and investments by its sovereign wealth fund

Published: Wed 20 Apr 2022, 3:29 PM

Updated: Wed 20 Apr 2022, 3:41 PM

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The conventional T-Bonds will be denominated in UAE dirhams to develop the local bonds debt market and ultimately, the aim is to help develop the mid-term yield curve. — File photo

The conventional T-Bonds will be denominated in UAE dirhams to develop the local bonds debt market and ultimately, the aim is to help develop the mid-term yield curve. — File photo

The UAE announced on Wednesday the launch of dirham-denominated treasury bonds with a benchmark auction size of Dh1.5 billion.

The Ministry of Finance (MoF), which is issuing the bond in collaboration with the Central Bank of the UAE, said the first auction would take place in May.

“Subject to market conditions, the first auction date to be held in May 2022 is expected to be announced soon, followed by a series of periodical auctions as published in the Issuance Calendar for 2022 on the MoF website,” said the MoF.

The latest treasury bond issue comes in the wake of the first federal bond launched in October 2021 after the government passed a law in 2018 allowing the federal government to issue sovereign debt for the first time to finance infrastructure projects and investments by its sovereign wealth fund.

“The conventional T-Bonds will be denominated in UAE dirhams to develop the local bonds debt market and ultimately, the aim is to help develop the mid-term yield curve. The securities will be issued initially in 2/3/5 year tenures, followed by a 10-year bond at a later date,” the MoF said in a statement.

Building local currency bond market

Mohamed bin Hadi Al Hussaini, Minister of State for Financial Affairs, said that the bond issuance is in line with the government’s directives and aligned with international best practice.

“Issuing the T-Bonds in local currency will contribute to building a local currency bond market, diversifying financing resources, boosting the local financial and banking sector, as well as providing safe investment alternatives for local and foreign investors. This issuance will also help build the UAE Dirham-denominated yield curve, thereby strengthening the local financial market and developing the investment environment,” said the minister.

The T-bond will be auctioned and traded through Bloomberg’s Auction System and settled through a local platform, compliant with international standards, built and operated by Euroclear Bank.

The MoF and the CBUAE worked with relevant government entities and international financial bodies to ensure best practice was followed when structuring the T-Bonds, said the statement.

Another milestone

Khaled Mohamed Balama, Governor of the Central Bank of the UAE, said the launch of the T-Bonds programme represents another milestone towards the development of a dirham local market for securities issued by the public sector in the UAE and follows the launch of the Monetary Bills programme earlier last year.

“With the robust financial market infrastructure developed for the purpose, we are confident that the launch of such a program will enable market participants in the UAE to maintain a transparent, single, diversified and sustainable pool of dirham liquidity. It shall also contribute to the implementation of the new Dirham Monetary Framework and support the ongoing work on establishing the Dirham risk-free pricing benchmark (yield curve), which would stimulate further domestic market activities,” said Balama.

“The issuance of the T-Bonds by the Ministry of Finance to establish a mid-term yield curve comes as the next step forward in the development of the local capital market. This is made possible thanks to the launch of the innovative end-to-end platform and the creation of a short-term yield curve by the Central Bank early last year. As a long term partner to the UAE, we are proud of our continued collaboration with the Ministry of Finance and the Central Bank to develop the capital market which will have an impact on other domestic activities,” said Sudip Chatterjee, head of Global Capital Markets at Euroclear.

More depth to UAE financial markets

Bal Krishen, chairman and CEO of Century Financial, said issuance of dirham bonds will help UAE raise funds directly from the market and will thus free up resources of the bank for giving loans to other lenders.

“And a vital aspect is that it will lead to the creation of a local bond market and a yield curve. A yield curve with bonds of different duration traded in the market will result in a transparent pricing mechanism that will determine the risk-free rate. Banks can use the risk-free rate as a reference for the issuance of loans of comparable duration. Moreover, the dirham bonds will provide more depth to UAE financial markets by increasing the availability of sophisticated financial products,” he said.

The MoF has published a “Primary Dealers” code and boarded six banks namely ADCB, Emirates NBD, FAB, HSBC, Mashreq and Standard Chartered to participate in the T-Bonds primary market auction and to develop the secondary market.

The bond issuance provides pricing reference for other UAE markets (bond and equity), and enhances the ability to cover future funding needs in UAE dirham. It will also provide opportunities for foreign investors to invest in UAE dirham-denominated bonds.

— issacjohn@khaleejtimes.com



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