Saturday, Feb 20, 2016
Dubai: Dubai, through product innovation, and undertaking infrastructure enhancements to support primary market issuance and secondary trading, could develop its debt market and help it attain the ambition of being the leading global Islamic financial centre.
The UAE remains the largest bond market in the GCC in terms of issuance with around $19 billion (Dh69.7 billion) of new bond issuances in 2013, representing 41 per cent of the market share of total new issuances in the GCC. Dubai accounted for about 72 per cent of the total bond issuances in the UAE in 2014 and has become a world leader in the Islamic bond industry overcoming other Islamic debt markets with a $36.7 billion nominal value of listed sukuks in 2014.
“Debt capital market can play a crucial role in enhancing the financial sector through its role in diversifying the sources of financing for both the government and the private sector, helping to enhance financial sustainability among many other benefits,” Hani Al Hamli, Dubai Economic Council (DEC) Secretary General said in a statement.
The joint report by Deloitte Corporate Finance Limited (DCFL) and the Dubai Economic Council (DEC) focuses on debt capital market, both conventional and Islamic, and aims at analysing its present situation and future prospects and identifying opportunities versus challenges, to make significant conclusions and policy recommendations to deepen this market in the future.
Critical
“The development of a local debt market is a critical part of developing a sound and well-functioning financial system. Further developing Dubai’s local debt market could provide an additional source of funding for government related entities and corporates enhance financial stability by allowing the financial system to absorb potential economic shocks, reduce the risk of international capital inflows and also provide additional tools for the government to implement its monetary policy,” Humphry Hatton, CEO, Deloitte Corporate Finance Limited said.
“In this regard, enhancing Dubai’s regulatory framework to protect investors and give incentives to corporates to enter the debt market, could be critical to increasing market liquidity. Promoting continuous product innovation supported by market infrastructure improvements could provide market participants with additional debt raising and risk management tools which could further deepen Dubai’s debt markets in both conventional and Islamic finance (Sukuk), enhance transparency and support liquidity.” he added.
Enhancing liquidity remains vital for the further development of the debt market. The report urges the introduction of derivatives on Dubai’s exchanges such as interest rate swaps, government bond forwards and currency exchange swaps.
Trading hours
Furthermore, the report adds that trading hours of Dubai’s exchanges would be extended, in line with international markets, to bolster trading activity during shoulder periods of the day (the time interval between the peak and low), and increase foreign investors’ participation. Market maturity and liquidity levels should be assessed parallel with the additional costs associated with extending trading hours.
The debt markets investor base may be widened by targeting a broader spectrum of investors, including foreign institutions, Islamic institutions and retail investors. The development of additional products and offerings, such as green bonds, derivative products and Sharia-compliant products, may be a further catalyst to attracting additional investors to the debt market, the report added.
Staff Report
Gulf News 2016. All rights reserved.
