Debt Capital Market A recent report by Fitch Ratings sheds light on the remarkable 10% year-on-year expansion of the UAE’s outstanding debt capital market (DCM), reaching $270 billion by the close of 2023. The report delves into key insights and trends shaping the financial landscape in the region.
Currency Distribution and Composition
- US dollar DCM issuances, particularly sukuk, constitute a substantial 35%, showcasing a notable increase from the previous year.
- Sukuk holds an 8.7% share in DCM issuance across all currencies, driven by multiple dirham issuances.
Issuance Highlights in 2023: Debt Capital Market
- Sukuk issuance across all currencies experiences a significant 115% year-on-year surge to $12.7 billion.
- Bond issuance shows a steady increase, rising by 23.6% year-on-year to $132.9 billion.
Financial Outlook and Stability
- The UAE’s debt-to-GDP ratio is anticipated to remain close to 32% in the coming years, reflecting factors such as a surplus in Abu Dhabi, stable debt in Dubai and Ras Al Khaimah, and strategic borrowing by the federal government.
- UAE banks play a crucial role as debt investors, with their investment portfolios witnessing a robust 21.7% year-on-year increase to $163.6 billion.
Position in the GCC and Nasdaq Dubai
- The UAE holds the largest US dollar DCM share in the Gulf Cooperation Council (GCC) at the end of 2023, with a significant 37% outstanding.
- Nasdaq Dubai is projected to maintain its status as one of the top global listing centers for US dollar sukuk, providing a competitive edge for the UAE.
ESG Debt and Future Projections
- Outstanding UAE ESG debt experiences an impressive 165% year-on-year growth to $17.1 billion, with 40.2% in sukuk format.
- Fitch expects the DCM to reach $300 billion outstanding in 2024-2025, with sukuk continuing to be a growing part of the UAE’s funding mix.
Sustainable Finance Initiatives and Potential Risks
- Initiatives promoting sustainable finance, including ESG debt issuance, are expected to receive a boost in the near term.
- Risks for DCM growth include potential impacts from rising interest rates and oil prices. For sukuk, challenges may arise related to the adoption of AAOIFI-Sharia standards.
The comprehensive report underscores the dynamic financial landscape of the UAE, highlighting key trends and future projections in its debt capital market.
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