The Dubai International Financial Centre (DIFC) is working with a division of the World Bank to help develop regional bond markets.
The World Bank’s Multilateral Investment Guarantee Agency (Miga) is partnering with the DIFC to offer political risk insurance on bonds issued from the Gulf region.
“The DIFC and Miga are co-operating with regional governments and corporates to get bonds issued which will come with a Miga guarantee,” says Nasser al-Saidi, chief economist at the DIFC.
“This will help improve the ratings of the bonds by reducing political risk, which will reduce financing costs and attract greater foreign direct investment flows to the region,” he says.
The Miga guarantee can offer reassurance to investors concerned about the impact of war, governments breaching contract terms or nationalising assets associated with bond issues. It also covers the risk of transferring investors’ income into other currencies and jurisdictions.
The development of the regional bond market has been boosted by sovereign issues of $3bn in Abu Dhabi and Qatar in April, followed by bond issues from several regional government-related companies.
The latest of these bond issues is Abu Dhabi-owned Tourism Development & Investment Company (TDIC), which is launching a $1.45bn sukuk issue.
Al-Saidi says these initial issues are positive developments in the regional capital markets, but more needs to be done to develop local currency bonds issues.
“Local currency issues are useful for governments in terms of economic policy as they have control over their currency,” says Al-Saidi. “If bonds are all issued in dollars then local governments have more limited control over capital flows.”