UAE bonds skirt emerging-market slump amid new-issue drought

12/08/2015 06:22 AST

Dubai: United Arab Emirates’ bonds are beating emerging-market peers as a scarcity of new issues and their higher ratings help them withstand market volatility.

The Bloomberg UAE bond index, which tracks the price of investment-grade US dollar bonds in the second-biggest Arab economy, is little changed since April, closing at 109.26 on August 7. That compares with a decline of 3.08 points in the Bloomberg emerging-market dollar bond index and a 2.36-point drop in the global investment-grade dollar corporate bond index over the period.

Debt securities worldwide have been volatile since May as concern mounted that a potential Greek default could roil markets and signs of a strengthening US economy bolstered the case for the Federal Reserve to raise interest rates after leaving them near zero since 2008.

A 27-per cent drop in bond sales from the six-nation Gulf Cooperation Council this year is also helping support bond prices as local banks and institutions prefer to hold them to maturity as new supply is expected to be limited, according to Anita Yadav at Emirates NBD PJSC, the UAE’s second-biggest bank by assets.

“In times of market volatility, it is only bonds from companies such as Taqa, IPIC and QNB, that have high international investors participation, that get affected more,” Yadav, the head of fixed-income research, said by phone on Monday. Second-quarter results of companies in the region “have been comfortingly good, and with no material credit concern on horizon, UAE bond prices have held up well.”

The average credit ratings of UAE bonds at A is also two notches higher than the BBB+ average of emerging-market bonds. And while crude prices have dropped almost 30 per cent since April, it has had little impact on the oil-dependent economies in the region.

The UAE dirham’s peg to the dollar also helps companies as a strengthening dollar doesn’t affect their debt-service burden, according to Yadav. In contrast the Brazilian real has lost 23 per cent versus the dollar this year while the Russian rouble is one of the worst performing currencies this quarter, according to data compiled by Bloomberg.

Gulfnews