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In a new report, Fitch Ratings said UAE companies have a more diversified funding base than their peers.
Debt capital market (DCM) and equity capital market (ECM) issuances account for 32% of H122 corporate financing structures (compared to 2% for Saudi corporates in 2021).
After raising $15 billion in 2021, up 43% year-on-year, DCM issuance by H122 companies fell to $2.3 billion, according to Fitch-adjusted Bloomberg data for companies with a market presence. “We expect DCM issuance to remain low for the remainder of 2022, but to grow in the medium term, supported by improving economic activity,” Fitch said.
bond instead of sukuk
In H122, DCM issued 85% of bonds instead of sukuk. Much of this can be explained by the introduction of the AAOFI standard on physical requirements. Small and medium-sized corporate issuers are most affected by Shariah standards, forcing companies to either opt for traditional notes or delay sukuk transactions. Fitch expects the momentum of DCM issuance via international bonds and sukuk to pick up after 2022.
All UAE fixed income bonds are issued in international markets and none are issued locally. Instead, Saudi companies have access to the more developed local sukuk market.
The UAE conducted IPOs mainly driven by government-related entities, raising nearly US$9 billion in H122 (2021: US$5 billion), accounting for 79% of total fixed income and equity income, mainly due to the high volume of DCM issuance in H122. All-time low.
Regulatory push
A two-way regulatory push toward deepening the stock market and building a local bond market may further benefit the diversification of corporate financing portfolios in the medium term.
Bank funds remain the main source of funding for corporate capital structure, accounting for 64% of the capital structure in 2021 (H122: 68%). arab trade news agency
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