UAE Trends and Developments Contributed by: Victoria Mesquita, Ganna Vlasenko and Aran Au, Curtis, Mallet-Prevost, Colt & Mosle LLP
Curtis, Mallet-Prevost, Colt & Mosle LLP 19th Floor Emirates Financial Towers - North Dubai International Financial Centre P.O. Box 9498 Dubai UAE
Tel: +971 4382 6100 Fax: +971 4382 6150 Email: vmesquita@curtis.com Web: www.curtis.com
The Growing Need for Securitisation in the UAE Securitisation has emerged as a vital instrument in modern financial markets, playing a key role in capital allocation, risk management and liquid - ity enhancement. Modern securitisations find their origin in the 1970s with the first mortgage- backed securities in the USA, and since then the market for securitisations has grown exponen - tially across continents, in the USA and Europe in particular. The term “securitisation” is in fact often used loosely to refer to all asset-backed securities (ABS), including repackagings, collateral debt obligations and “true” securitisations. ABS transactions play a pivotal role in mature finan - cial markets as they allow borrowers and origi - nators to raise finance from sources outside the more traditional bank finance and the public capital markets. Despite its many advantages, the securitisation market in the UAE remains relatively undevel - oped. A growing securitisation market would benefit the UAE financial markets in several ways. These are as follows.
• A vibrant securitisation market would create additional sources of financing which would benefit SMEs in particular. Bank finance in the UAE is generally hard to come by for companies which are not government-related entities or investment grade, and the conven - tional public bond markets are generally inac - cessible to businesses that are not mature companies with large creditworthy balance sheets that can also handle large amounts of disclosure. • Securitisations may provide for a cheaper source of finance than would otherwise be available to the borrower or originator. This cheaper cost is achieved through an arbitrage between the yield paid under the underlying receivables and that paid by the issuer under the securitisation. • Securitisations give originators the ability to remove receivables from their balance sheets. This is particularly important for banks and financial institutions, as removing receivables from their balance sheets will result in lower capital ratio requirements. • A buoyant real estate market has given rise to a dramatic increase in UAE banks’ expo - sure to residential real estate mortgage loans. Residential mortgage-backed securities would provide banks with an effective tool
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