The UAE corporates’ funding base is more diversified than peers, says Fitch Ratings in a new report.
Debt capital market (DCM) and equity capital market (ECM) issuances represented 32% of corporates’ funding structure in H122 (compared with, for example, 2% for Saudi corporates in 2021).
DCM issuances for corporates dipped to $2.3 billion in H122, after a 43% increase year on year in 2021 raising $15 billion, according to Fitch’s adjusted Bloomberg data for corporates with market presence. “We expect DCM issuances to remain low for the rest of 2022 but to grow in the medium term, supported by improved economic activity,” Fitch said.
Bonds rather than sukuk
DCM issuance was 85% bond rather than sukuk in H122. This is largely explained by the introduction of AAOFI standards regarding tangibility requirements. Small to mid-size corporate issuers were the most affected by the sharia standards, pushing companies to either opt for conventional notes or postpone sukuk transactions. Fitch expects the momentum of DCM issuances through international bond and sukuk notes to pick up after 2022.
All UAE fixed-income issuances were raised on the international market and none locally. Conversely, Saudi corporates have access to a more developed local sukuk market.
UAE has had a spree of IPOs mainly driven by government-related entities, raising nearly $9 billion in H122 (2021: $5 billion), representing 79% of total fixed income and equity proceeds, largely due to record low DCM issuance in H122.
Regulatory push
A bidimensional regulatory push skewed towards deepening the equity market and establishing a local bond market in the medium term could further benefit the diversification of corporates’ funding mix.
Bank funding remains the primary source of funding for corporates’ capital structures, representing 64% of capital structure in 2021 (H122: 68%).-- TradeArabia News Service
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