UAE mega projects set to drive bond, sukuk issuances

As the UAE continues to roll out mega projects that emphasise sustainability, the bond and sukuk markets are set to flourish, enabling the region to attract investment while advancing its climate goals. This evolving financial landscape positions the UAE as a leader in innovative funding solutions aligned with global sustainability standards.

 Global credit rating agencies, including Standard & Poor’s and Fitch, predict a rising dependence on these financial instruments in the coming years. This trend is largely driven by the need to diversify funding sources and promote sustainable investments that align with climate goals.

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 Bashar Al Natoor, managing director and global head of Fitch Ratings’ Islamic Finance Group, emphasised that while traditional financing methods still dominate, the demand for innovative and sustainable funding has grown significantly due to these large-scale initiatives. “Sukuk and bonds have partially financed numerous past projects, and their role is expected to expand,” he stated.

 Al Natoor predicts that as both public and private sector institutions in the UAE and surrounding regions develop alternatives to conventional financing, reliance on sukuk and bonds will increase. He pointed out a number of upcoming endeavors, including real estate developments, infrastructure upgrades, and renewable energy projects, which are anticipated to drive this demand.

 In Dubai, infrastructure projects are set to take center stage, accounting for 46 per cent of the total government expenditures in the 2025-2027 budget. This budget covers essential initiatives such as roads, tunnels, bridges, transportation systems, sewage plants, parks, renewable energy stations, and a rainwater drainage network.

 Among the notable initiatives is the expansion of Al Maktoum Airport, which aims to enhance quality of life and promote smart, sustainable mobility in the emirate. Al Natoor explained that under the UAE's strategic vision for achieving net-zero emissions by 2050, a series of green projects will emerge, which will serve as a critical driver for the sukuk and bond market.

 “This strategy will lead to increased issuances across various sectors, financing sustainable projects that align with the UAE’s environmental objectives—a trend we have already begun to witness,” Al Natoor added. He highlighted that the UAE’s green projects will attract global investors keen on sustainability-linked financial instruments.

 Zahabia Gupta, director and lead analyst for Middle East and Central Asia at S&P Global Sovereign Ratings, echoed these sentiments, noting that robust public investment plans will fuel bond and sukuk issuances in the UAE over the next two to three years. Key projects, such as the $35 billion Al Maktoum Airport expansion and the $8.2 billion rainwater drainage network, set for phased completion by 2033, will significantly contribute to this growth.

 Gupta also noted that lower interest rates would facilitate increased lending for businesses and individuals, particularly for mortgage financing. On a federal level, the UAE government began issuing foreign currency bonds in 2021, followed by local currency treasury bonds in May 2022 and local currency sukuk in April 2023. These measures aim to develop the capital markets and create a yield curve for non-sovereign issuers.

 In a related development, Nasdaq Dubai recently welcomed the Middle East and North Africa’s first corporate Blue Bond listing, amounting to $100 million from DP World, a leading global supply chain solutions provider. Issued under DP World’s $10 billion Global Medium-Term Note Programme, this bond features a 5.25 per cent coupon rate and matures in 2029. The issuance achieved a spread of just 99.6 basis points above U.S. Treasuries, marking the tightest spread ever realized by DP World in both the bond and sukuk markets.

Issac John

Staff Writer

issacjohn@khaleejtimes.com

Issac John is Managing Editor at Khaleej Times and has over 45 years of experience in top-tier newspapers across UAE. A seasoned business writer and economic analyst, he brings unmatched insight into the geopolitics and geoeconomics shaping the Gulf and India.