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New rules governing bond and sukuk markets will make UAE more attractive to smaller issuers, says SCA

Out-Law News | 22 Sep 2014 | 12:09 pm | 1 min. read

New rules opening up the market for bonds and sukuk in the United Arab Emirates (UAE) will make the country more attractive to smaller issuers, the head of its Securities and Commodities Authority (SCA) has said.

The new rules, which were introduced this month, reduce the minimum issue size from 50 million dirhams (£8.4 million) to 10 million dirhams (£1.7m) and relax reporting requirements so that issuers need only make financial statements annually rather than quarterly. The SCA also intends to reduce the time it takes to review and approve market applications to five days, while private placements of bonds not issued on the UAE securities exchanges will no longer need SCA approval.

Abdullah Al-Turifi, the SCA’s chief executive, said that the new rules would modernise the country’s financial markets.

“These regulations are part of a move to increase UAE as a hub for finance services and promote the local debt markets as an important component of financial markets,” he said. “The growth of the international and local bond market brings to investors more option for diversification of his investments and offers investors the benefits of wide spectrum of attractive returns bonds.”

The total value of bonds and sukuk, the Islamic equivalent of a bond, issued in the UAR during the first half of 2014 exceeded 44.2 billion dirhams (£7.3 billion), according to a Thomson Reuters report. This was almost 55% of those issued in the Middle East. The combined value of sukuk issued in the countries that make up the Gulf Cooperation Council (GCC) grew by 19% in the same period, compared to 6% in Malaysia.

The new regulations apply to any bonds or sukuk issued in the UAE outside of its free zones or listed on the country’s markets, other than those issued by governments.

“The UAE and SCA specifically is the first of the regional regulators to release updated and upgraded regulations,” said Michael Grifferty, president of the Gulf Bond and Sukuk Association (GBSA), an industry body. “With this positive example, we expect others to follow.”

“We find these regulations fairly streamlined and mutually consistent. They are also light on unnecessary requirements that might have otherwise made the process time-consuming, cumbersome and therefore unappealing to issuers. This will help earn the interest of potential issuers and advisors who may be reviewing options for conventional or sukuk,” he said.