UAE corporates have a more diversified funding base compared to their regional peers, said Fitch Ratings in a new report.
Debt capital market (DCM) and equity capital market (ECM) issuances represented 32% of corporates’ funding structure in the first half of 2022, compared with 2% for Saudi corporates in 2021.
Bank borrowings financed 68% of corporates’ funding structure, raising $24 billion in the same period.
DCM issuances for corporates dipped to $2.3 billion in the first half, after a 43% year-on-year increase in 2021 raising $15 billion, according to Fitch’s adjusted Bloomberg data for corporates with market presence.
"We expect DCM issuances to remain low for the rest of 2022 but to grow in the medium term, supported by improved economic activity," the report said.
The proportion of Islamic facilities to UAE corporates' bank funding increased to 21% in 2021, albeit far lower than the 85% for Saudi corporates, due to the kingdom’s dominant Islamic financing sector.
Conventional bonds accounted for most issuances, at 96% in 2021 compared to 80% in 2020. Sukuk contributions to fixed-income issuances fell significantly to 4% in 2021 from 20% in 2020, due mainly to the introduction of AAOFI standards regarding tangibility requirements.
Small- to mid-size corporate issuers were the most affected by the Sharia standards, pushing companies to either opt for conventional notes or postpone sukuk transactions.
"We expect the momentum of DCM issuances through international bond and sukuk notes to pick up after 2022. All UAE fixed-income issuances were raised on the international market and none locally. Conversely, Saudi corporates have access to a more developed local sukuk market."
UAE has had a spree of IPOs mainly driven by government-related entities, raising nearly 9 billion in the first half of 2022. This is up from $5 billion in 2021 and represents 79% of total fixed income and equity proceeds, largely due to record-low DCM issuance in the period.
(Writing by Brinda Darasha; editing by Cleofe Maceda)