Dubai-Mubasher: The expected UAE federal bond issue would ease pressure from deposit demands on the banking sector, Arqaam Capital said in a strategy note.
The issuance will also limit crowding out of private sector credit growth at least in the initial phase.
Arqaam also projected proceeds of the issuance to help cover 75-95% of the country’s expected deficit for 2016, even with an oil price of $35 per barrel.
The UAE federal government is working on ratifying a new federal law for bonds issue. The law, under review for the past six years, is expected to be passed over the next six to nine months, with the UAE Central Bank responsible for issuing the bonds.
Following the ratification, the government expects to issue AED 80-100 billion in bonds.
The planned issuance represents 3.3-4.0% of UAE commercial banking assets and 26-33% of total aggregate cash held by banks.
Arqaam expected banks to reduce their positions in certificates of deposits issued by the UAE Central Bank and to rotate into these federal bonds, the statement said, adding that the investment bank also sees UAE sovereign wealth funds as natural buyers.
