UAE regulator aims to stem flow of overseas debt sales

16/09/2014 01:22 AST

The federal stock market regulator has introduced a series of reforms to its bond and sukuk regulations in a bid to halt the flow of big debt sales overseas

The Securities and Commodities Authority made the changes after a wide-ranging consultation.

“In our review we found out the rules we had in place were only for listing and trading, not for issuing,” said Munther Barakat, senior adviser at SCA at a workshop held for the legal financial community at Abu Dhabi’s St Regis hotel.

“We received many comments from international bodies that the regulations have to be that they have to be modernised, and that the small size of bond trading currently is being hampered by the existing regulations.”

London is a leading global centre for conventional finance which is boosting its profile in the sukuk business.

The UK capital’s efficiency in listing procedures and track record in running orderly markets has given it a commanding position in Islamic debt, with an estimated US$27 billion worth of sukuk listed there.

Issues from the UAE in bonds and sukuk in the first half of this year reached Dh44.2bn, representing more than half of the debt issuances in the region, according to Thomson Reuters.

But big ticket issues from large government-backed groups such as Mubadala and Aldar have opted to list their bonds in London.

The regulator took soundings from companies to learn “what they needed for them to be able to issue and list”, Mr Barakat said.

“We saw the obstacles in our pre-existing regulations and overcame those in the new ones.”

The new regulations make a distinction between retail and wholesale offerings of bond and sukuk.

Federal governments are exempted from SCA approval, but local government and companies – where the debt is not guaranteed – are not exempted. Issuers have to be established in the country.

Other features include a reduction in the minimum offering of an issuance from Dh50 million to Dh10m, in addition to a reduction in the time of the approval to five days. The regulator also cancelled a requirement that the issuer must have a credit rating to seek approval. It also allows for a “programme of several debt issuances”, compared with the previous regulations which required SCA approval for every issue.

The regulations also include provisions for cross-listings and “over-the-counter trading” so long as the trade is then reported to the exchange at the end of the trading day.

The clearing and settlement does not have to be in the UAE, and can take place outside the local market.

“We find the published regulations to be considerably streamlined and mutually consistent between bond and sukuk regulations and relieved of the excess detail that you sometimes find in regulations that makes it cumbersome and costly, which can be the enemy of bond issuances,” said Michael Grifferty, president of the Gulf Bonds and Sukuk Association.

“We tried to be as much as possible a balance between the protection of investors and being flexible and modern,” Mr Barakat said. “There’s a trend of companies listing outside the UAE and we want to cater to their needs,” Mr Barakat added.

Historically the global sukuk business has split between two rather unlikely hubs – London and Malaysia.

Some analysts have questioned why the Middle East has not developed a single hub for sukuk trading. The UAE, with slightly more than $10bn of sukuk listed, is the biggest, with Saudi Arabia at $6.7bn.

The National