UAE Nears Debt Listing Rules To Boost Sales: Islamic Finance

The United Arab Emirates is in the final stages of creating debt issuance and listing regulations that will help develop a domestic credit market and encourage the sale of Islamic bonds, the market regulator said.

The Securities and Commodities Authority, or SCA, has circulated draft rules that for the first time treat sukuk and non-Shariah compliant debt separately. The regulator is seeking feedback from market participants by the end of the year and “hopes” to enact the regulations early in 2014, according to Obaid Al Zaabi, director of research and development at SCA.

The UAE, the second-biggest Arab economy, must develop local debt markets to help state-run and private companies find alternatives to bank loans, Central Bank Governor Sultan Al- Suwaidi said last month. The country is the only one in the six- nation Gulf Cooperation Council that doesn’t have a domestic, local-currency debt market.

“The new sukuk and bond regulations are built around giving more room for local issuance to be listed in local markets, instead of going abroad,” Al Zaabi, who is leading the team that developed the sukuk regulation, said by phone on Sunday. “We’re opening the door for them and trying to make the regulations more durable and more feasible.”

Islamic Hub

Global issuance of Islamic bonds, which comply with the religion’s ban on interest, will climb to $60 billion next year, Moody’s Investors Service said in a report last month, up from about $51 billion in 2013. The rules will boost issuance and listing of sukuk in the UAE, Al Zaabi said.

“Sukuk essentially is not considered as a debt certificate, but rather a certificate of ownership,” Al Zaabi said. “The requirements, in terms of disclosure, listing, and trading, totally differ to conventional bonds. So the SCA management saw it was a good idea to make it separate.”

Dubai, one of seven sheikhdoms that make up the UAE and home to the country’s second-largest stock market, announced a plan this year to become capital of the global Islamic economy. The emirate’s ambition is one of the incentives for the SCA to put the rules in place as soon as possible, Al Zaabi said.

Rival Malaysia

Dubai and the UAE have a lot of catching up to do before domestic sukuk issuance rivals that of Malaysia or Saudi Arabia. The Asian country’s issuers have sold about $168 billion, or two-thirds of all outstanding Shariah-compliant bonds, while Saudi Arabia has about $22 billion of domestic sukuk outstanding, according to Moody’s.

The UAE’s debt rules will bring listing and issuance in line with best practices, Al Zaabi said. Clifford Chance LLP was appointed to develop the sukuk regulations, while Bracewell & Giuliani LLP worked on the bond rules, he said.

“The upgraded rules for both bonds and sukuk will cover all aspects of industry requirements,” Al Zaabi said. “From the application onwards there will be continuous disclosure requirements.”