UAE sets rules for covered bond issues

The United Arab Emirates issued rules for the issuance and trading of covered bonds, potentially a major step towards developing its debt market and giving commercial banks a new source of funding.

The Securities and Commodities Authority, the UAE’s financial market regulator, set conditions for banks and other companies to obtain licences allowing them to issue covered bonds, state news agency WAM reported on Sunday.

The SCA also set requirements for issuers to disclose information affecting the prices of the bonds.

Covered bonds are backed by cash flows from mortgages or public sector loans; they are viewed as relatively safe because investors have a preferential claim on the assets in the event of a default.

Dubai’s real estate market is rebounding strongly after its crash of 2009-2011, and UAE banks are expected to finance tens of billions of dollars worth of property projects in coming years. Covered bonds could help them obtain the cheap funds they need to provide such financing.

By creating a new investment tool, the covered bond rules will add depth to the UAE’s financial markets, WAM quoted Economy Minister Sultan bin Saeed al-Mansouri as saying.

The SCA’s board also ordered studies of best international practice so that a regulation covering the listing of bonds on the country’s securities markets can be passed in the first half of this year, WAM said.

The UAE is the second sizeable market for covered bonds to open in recent weeks. In mid-December, South Korean lawmakers ratified a bill allowing local banks to issue the instruments.