NBAD Corporate Finance Presentation

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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
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Regional Newspaper Headlines
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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

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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
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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
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Composition of UAE GDP in 2004
Source Ministry of Economy Planning, UAE
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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.
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GCC GDP 2004
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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

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Existing Capital Market Infrastructure

• Banking market
• Equity market
• Bond market

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Aggregate Balance Sheet of Banks
Source UAE Central Bank
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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).
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Growth in the UAE Markets
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Traded Volume in UAE Stock Markets
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UAE Equity Markets
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Market Capitalisation UAE Vs. Global
Largest Real Estate Companies Globally
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Market Capitalisation UAE Vs. Global
Largest Telecommunication Companies Globally
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UAE Listed Companies open to foreign ownership
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Growth in the UAE Markets
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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

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UAE Bond Issues
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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

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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

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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)

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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)

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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

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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

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THE Need for a Bond Market
Corporates Banks Investors UAE

A win, win, win, win, scenario
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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

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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

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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

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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

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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

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Thank you for your attention