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Inaugural debt issues by Abu Dhabi, Sharjah this year

abu dhabi landscape|By K Raveendran| Abu Dhabi is set to launch an inaugural issuance of treasury bills of around $1 billion this year, along with an issue of $500 million commercial debt by Sharjah to invest in capital projects, sources familiar with the subject reveal.

Also on the cards s a sukuk issue by Ras Al Khaimah, which has to refinance about $400 million in debt coming due this year.

Abu Dhabi has in principle decided to go ahead with the issue, but the move has to be approved by the Executive Council before it can be proceeded with, sources say.

Standard & Poor’s Global Sovereign Debt Report for 2014, which has just been released, does mention these issues by the UAE entities, although more specific details have not been disclosed.

The report notes that the given its low sovereign debt stock, Abu Dhabi’s roll-over rate as a percentage of GDP remains very low at below 1 percent; so an issue of the size mentioned is no problem.

According to S&P, sovereign debt capital markets are relatively underdeveloped in the GCC and therefore it does not expect Abu Dhabi, Kuwait, Qatar, or Saudi Arabia to issue long-term debt in 2014. In its view, financing these states’ large investment programs could result in weaker government balances, but as long as oil prices remain high, the agency expects them to continue to post fiscal surpluses.

S&P feels that the majority of borrowing related to investment programs will take place at the government-related entity level rather than through central government borrowing. So it expects that the smaller GCC states of Oman and Bahrain, along with the smaller emirates of Ras Al Khaimah and Sharjah, will issue commercial debt in the market. Ras Al Khaimah issued a $500 million bond under its $2 billion sukuk issuance program (RAK Capital) in 2013.

Standard & Poor’s Ratings Services projects that the 12 sovereigns that it rates in the Middle East and North Africa will borrow an equivalent of $56 billion from long-term commercial sources in 2014. This would be a 27 percent increase in long-term commercial debt issuance compared with 2013. About 67 percent, or $38 billion of the sovereigns’ gross commercial borrowing will be to refinance maturing long-term commercial debt, compared with $25 billion in 2013, resulting in an estimated net commercial borrowing of $18 billion.

Consequently, the agency projects that rated MENA sovereigns’ commercial debt stock will reach an equivalent of $462 billion by the end of 2014, up by $17 billion, or 4 percent from 2013. Adding in bilateral and multilateral debt, the total stock will reach $504 billion, a year-on-year increase of $15 billion, or 3 percent.

S&P expects that outstanding short-term commercial debt will reach $145 billion at year-end 2014. The share of noncommercial official debt (bilateral and multilateral) in total sovereign debt is set to fall to 8.7% of total debt as of year-end 2014, from 9.5% in 2013.