UAE Debt Capital Markets Experience Significant Growth With 13.1% Year-on-Year Increase, Says Fitch Ratings

The UAE's debt capital markets have shown significant growth, with a 13.1% year-on-year increase in outstanding debt, reaching US$294.4 billion by the end of the third quarter of 2024. Bashar Al Natoor from Fitch Ratings highlighted this expansion, noting the UAE's strategic role in the sukuk market, where sukuk accounted for 20% of the total debt capital market.

Al Natoor pointed out that the UAE holds a 6.6% share of global outstanding sukuk, ranking fourth worldwide after Malaysia, Saudi Arabia, and Indonesia. Regionally, it has the second-largest share of GCC outstanding sukuk at 16.2%, following Saudi Arabia's 71%. The UAE is also a major issuer of US dollar debt and ESG bonds in emerging markets.

In terms of issuance, the UAE saw US$9.9 billion in sukuk issuance during the first nine months of 2024, which was a 13% decrease compared to the previous year. However, this decline was less severe than the 25% drop in bond issuance over the same period. The Dirham Monetary Framework has increased the Dirham's share in outstanding debt to 21.1% by mid-2024.

Fitch Ratings assessed US$26.7 billion worth of UAE sukuk by end-3Q24, with 92.5% rated as investment-grade. Financial institutions dominated these ratings with a 51% share, followed by corporates at 21%. Investment-grade ratings suggest lower credit risk compared to speculative categories.

Islamic banks are crucial to the UAE's financial sector, contributing to 29% of total sector financing by mid-2024. Their growth rate was slightly higher than conventional banks at 5.7%. Islamic banks have increased their investments in Islamic certificates of deposit (CDs), reaching AED44 billion by mid-2024.

Future Prospects for Debt Capital Markets

The UAE's debt capital markets are expected to surpass USD 300 billion by late 2024 due to strategic enhancements attracting regional and international investors. Al Natoor emphasized that this growth is supported by a balanced mix of sukuk and bond issuances alongside high investment-grade ratings.

"The UAE’s Islamic banks also play a significant role in the country's financial landscape," Al Natoor continued. "Islamic financing accounted for 29 percent of total sector financing at the end of 1H24." He added that Islamic bank investments have risen throughout 2024 due to increasing interest in Islamic CDs.

Al Natoor concluded that robust growth is anticipated for the UAE's debt capital markets due to strategic positioning both globally and regionally within the sukuk market.

With inputs from WAM