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S&P says would be happy to issue UAE credit rating

Better data, transparency needed for sovereign rating.

November 9, 2010 9:41 by

Standard & Poor’s would be happy to issue a sovereign credit rating for the United Arab Emirates, its head of sovereign ratings for Europe, the Middle East and Africa said, but transparency and disclosure were key requisites.

The seven-member UAE federation is unrated, and the absence of a sovereign credit rating has remained an obstacle to widening the investor base following Dubai’s debt crisis which rattled global financial markets last year.

“We would welcome the step to issue a sovereign credit rating for the UAE, but ultimately it’s the decision of the government and central bank to come forward,” Moritz Kraemer, head of EMEA sovereign ratings at S&P, told Reuters.

“We also continue to follow the developments of Dubai and obviously, if they contact us, we would be happy to do so.”

Dubai returned to international debt markets in September with its first sovereign bond issue since a debt crisis rattled investors a year ago, attracting healthy demand for the $1.25 billion on offer.

“When Dubai issued the bond, they declared their attitude towards ratings but they decided that this was not the right time. This is why the bond is not rated,” he said, adding that governments usually seek a credit rating before issuing bonds.

The unrated issue was four times subscribed and priced at a yield of 6.7 percent on the $500 million five-year tranche and 7.75 percent for the $750 million 10-year tenor with spreads of 542.7 and 527 basis points respectively, over U.S. Treasuries.

Dubai and its companies have been climbing out of a $100 billion-plus debt hole over the past year. Richer emirate Abu Dhabi and its banks signed up for half of its $20 billion rescue programme for state-owned enterprises such as Dubai World .

“In most cases a debt issue is a trigger for governments to request a rating because they want to issue a bond. Obviously, the UAE have very unique features and fiscal federalism contrary to any other federations we have. There is clearly one big kid on the block and the others walk along with that,” Kraemer said.

“Abu Dhabi has an almost zero probability of default, but if you have all eggs in one basket, you are vulnerable. Clearly, there most be a drive to diversify the economy, and Dubai has shown these risks,” he said.

S&P has an AA rating for Abu Dhabi — seen as a stronger credit thanks to its oil revenues — and an A rating for the emirate of Ras al-Khaimah.

Banking sources said in October the government of Ras al-Khaimah was planning a bond issue worth at least $500 million. [ID:nLDE69E0A6]

Kraemer however said lack of transparency and regulation were still issues that hampered credit ratings in the country.

“The quality and the timeliness of the data is still below par and the depth of the data available. This is not Norway or Switzerland,” he said. “It is a process and quite a cultural change the way economic policy making has been happening.”

(Reporting by Martina Fuchs; editing by Stephen Nisbet)

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