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NBAD Corporate Finance Presentation

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Currently rely mainly on bank funding (will become scarcer and more expensive) ... is very desirable for sovereign ceiling, money supply inflation purposes ... – PowerPoint PPT presentation

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Title: NBAD Corporate Finance Presentation


1
UAE Central Bank Conference on Bonds Issuance in
the UAE
Richard AmosGeneral ManagerInvestment Banking
DivisionNational Bank of Abu DhabiAn Overview
of the UAE Market and the Road Ahead
12 March 2006
2
Regional Newspaper Headlines
3
Agenda
  • UAE Economy in a regional and global context
  • Existing capital market infrastructure
  • Bond issuance to date in the UAE
  • The need for a bond market
  • The benefits of a bond market to the UAE
  • The Road Ahead

4
UAE Key Economic Statistics
The UAE is the 2nd largest economy in the Arab
World
Economy the size of Singapore
One of the highest in the world
One of the fastest growing economies in the world
5th Largest 10 of the worlds proven oil
reserves. Can last 110 years at the current
production rate
Source Moodys, UAE Year book, CIA Worldwide
Handbook All figures are 2005F unless otherwise
indicated
5
GDP, Current Account Inflation
GDP Growth and GDP Per Capita
GDP Growth, (LHS) GDP Per Capita, US(RHS)
Source Moodys Country Report
Current Account Inflation
Current A/c balance, US bn (LHS) Inflation,
period end, (RHS)
Very high GDP per capita Enviable current a/c
surpluses
6
Composition of UAE GDP in 2004
Source Ministry of Economy Planning, UAE
7
Oil Production Development
Crude Oil Production, b/d mn (LHS) Crude Oil
Export Price, US/b (RHS)
Source Moodys Country Report
  • Despite substantial oil revenues, the UAE is the
    least oil dependent economy in the Middle East,
    with only 30 of its economy dependent on crude
    oil production.
  • There is increased diversification into
    Manufacturing and other industries.
  • Euromoney has classified the UAE as the safest
    Arab country for investment.
  • Those living in the UAE view it as the
    Switzerland of the Middle East.

Due to excellent planning and foresight, UAE is
the least oil dependent economy in the Middle
East.
8
GCC GDP 2004
9
Agenda
  • UAE Economy in a regional and global context
  • Existing capital market infrastructure
  • Bond issuance to date in the UAE
  • The need for a bond market
  • The benefits of a bond market to the UAE
  • The Road Ahead

10
Existing Capital Market Infrastructure
  • Banking market
  • Equity market
  • Bond market

11
Aggregate Balance Sheet of Banks
Source UAE Central Bank
12
2005 Rights Issue of Banks
Proceeds from rights issue based on par value
only. Total proceeds from rights issue
including premium price (premium proceeds are
recorded in equity rather than paid-up capital).
13
Growth in the UAE Markets
14
Traded Volume in UAE Stock Markets
15
UAE Equity Markets
16
Market Capitalisation UAE Vs. Global
Largest Real Estate Companies Globally
17
Market Capitalisation UAE Vs. Global
Largest Telecommunication Companies Globally
18
UAE Listed Companies open to foreign ownership
19
Growth in the UAE Markets
20
Agenda
  • UAE Economy in a regional and global context
  • Existing capital market infrastructure
  • Bond issuance to date in the UAE
  • The need for a bond market
  • The benefits of a bond market to the UAE
  • The Road Ahead

21
UAE Bond Issues
22
Agenda
  • UAE Economy in a regional and global context
  • Existing capital market infrastructure
  • Bond issuance to date in the UAE
  • The need for a bond market
  • The benefits of a bond market to the UAE
  • The Road Ahead

23
The Need From a Corporate perspective
  • Globally competitive companies are arising in the
    UAE
  • Emaar and Etisalat today
  • Aldar, Sorouh and others tomorrow?
  • Currently rely mainly on bank funding (will
    become scarcer and more expensive)
  • Easy to raise equity in the last 2 years
  • But the market will eventually recognise the
    dilution of rights bonus issues
  • And what goes up
  • Raising equity will become more difficult more
    expensive
  • Need to focus on profitability and EPS as markets
    liberalise
  • Strong companies with high ROE can acquire
  • Weak companies with low ROE get acquired
  • Debt / Equity balance will prevail to improve ROE

24
The Need From a Banks Perspective
  • Majority of local bank capital currently
    expensive Tier 1 equity
  • Banks need sources of Tier 2 (subordinated debt)
    capital
  • Rights issues are simply too expensive and too
    dilutive
  • Banks lend long borrow short
  • Need term debt (MTNs) to balance mismatch
  • Banks will quickly reach lending capacity
  • Need to turn over assets more quickly via
    securitisation
  • Banks will want to move away from capital
    intensive lending to less capital-hungry fee
    generating activities (e.g. advisory)

25
The Need The Investors Perspective
  • International investors are looking for emerging
    market credit exposure
  • Witness the response to recent EMTN programmes
  • Excellent credit at high spreads (M.E. premium)
  • Local investors very spoiled by recent strength
    of equity markets
  • Recent 5 month correction is a timely warning
  • Savvy investors recognise the need for asset
    class diversification
  • A balance of risk between equities and bonds
  • Pension funds Insurance companies should match
    long term liabilities with safe long term assets
  • Witness the popularity of the long bond in the US
    Europe bond (flattening yield curves
    dramatically)

26
Agenda
  • UAE Economy in a regional and global context
  • Existing capital market infrastructure
  • Bond issuance to date in the UAE
  • The need for a bond market
  • The benefits of a bond market to the UAE
  • The Road Ahead

27
The Need From a UAE Perspective
  • Bond markets will drive
  • Better corporate governance
  • Through better levels of disclosure
  • Better balance sheet structures
  • Lower cost of capital and higher ROE
  • Leading to stronger companies able to compete
    globally as markets liberalise (FTA)
  • With better asset / liability maturity mismatches
  • And, through Government issuance, will create a
    further tool for monetary policy, control of
    money supply, and a brake on inflation

28
THE Need for a Bond Market
Corporates Banks Investors UAE

A win, win, win, win, scenario
29
Agenda
  • UAE Economy in a regional and global context
  • Existing capital market infrastructure
  • Bond issuance to date in the UAE
  • The need for a bond market
  • The benefits of a bond market to the UAE
  • The Road Ahead

30
The Road Ahead
  • Lots of work already done
  • Some bonds already issued
  • Greater awareness being created (conferences like
    these initiatives in the markets)
  • But the speed needs to pick up to provide
    adequate capital for future development plans

31
The Road Ahead
  • Government issuance is not just about raising
    money but also about establishing a benchmark
    yield curve
  • A disclosed Government rating would lift the
    ratings of many banks and corporates and reduce
    the cost of financing creating stronger UAE
    companies
  • Government rating and issuance is very desirable
    for sovereign ceiling, money supply inflation
    purposes but not absolutely essential
  • AED/US peg allows the swap curve to be the
    benchmark for issues (vis Govt. of Dubai AED 1.5
    bn 5 yr. (fixed)
  • ADSM and DFM eager to list bonds

32
The Road Ahead
  • Establish Yield Curve
  • Government rating
  • Government issuance
  • Establish regulatory/disclosure procedures
  • Establish independent rating agency
  • Create liquidity
  • Encourage issuance (stock)
  • Encourage market makers (flow)
  • Explore techniques for credit enhancement
  • To encourage issuance from smaller growing
    companies

33
The Road Ahead
  • A coordinated UAE - wide development
  • Market is too small for fragmented approach
  • A study sponsored by the Industry, and supported
    by the Central Bank to establish requirements of
    participants
  • Steering group already established
  • Development to proceed from the findings of the
    study in a cohesive supportive manner

34
Thank you for your attention
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