$2bn MAF bond program shows hidden strength of UAE private sector

Gulf shopping mall owner Majid Al Futtaim has established a $2 billion global bond program, the first by a UAE private sector group since the global financial crisis.

Government-owned Dubai airline Emirates issued a $1 billion bond earlier this month, and 32 per cent government owned Emaar has raised $500 million. However, MAF Holding is one hundred per cent owned by its reclusive founder who never gives interviews.

Bond arrangers

The MAF bond program will be arranged by Barclays, Standard Chartered and Emirates NBD. Like the governments of the UAE, MAF is keen to take advantage of the current low costs of borrowing by issuing corporate bonds.

The group has debts of $2.86 billion and wants to spend $3.5 billion on four new malls by 2015 as well as opening 11 more Carrefour hypermarkets this year in Saudi Arabia, the UAE, Iran, Oman, Egypt, Iraq and Pakistan.

MAF has always been admired by rivals for its market timing that seems to rely mainly on the excellent business instincts of its founder who got the huge Mall of the Emirates, with its amazing ski slope, open just in time to cash in on the development of New Dubai.

That the UAE private sector is now able to return to bond markets is very significant, and shows just how far the Dubai debt default of November 2009 is now regarded as past history. Indeed, bond yields are presently back to pre-crisis levels.

Proven success story

Of course, it will be the quality and proven private companies that can get these bonds away. Nobody will be rushing to lend to Kuwaiti investment firms or others in the region who are still in deep financial trouble.

Often it is those companies that need finance least who are able to raise it. MAF, for example, could manage perfectly well without its new bond program which is only about maximizing profits through lower interest payments and not survival.

That is what should happen in a recession: the strong get stronger and the weak get knocked on the head. It is the law of the jungle and how capitalism continues to deliver economic expansion over the longer term by allocating capital to those who use it best and liquidating those who do not.