The United Arab Emirates Central Bank wants bankers to work out a plan for developing a local debt market to allow business to raise funding locally and complement an existing equity market.

In a circular sent to banks last week, the UAE Central Bank sought nominations for a committee to devise a strategy for building such a market, two bankers told Reuters.

'The cornerstone for the development of a local currency bond market is the creation of a risk free yield curve resulting from government bond issuance,' said Deepak Kohli, head of capital markets for Mena & South Asia at Standard Chartered bank, adding the initiative was very timely and could significantly help the economy as a whole.

Problems in the emirate of Dubai, whose flagship state conglomerate Dubai World is seeking to restructure its multi-billion dollar debt, have coloured the attitude of investors to the region.

However, the Dubai problems are mainly related to bilateral and multilateral bank loans and are not shared by other emirates and countries in the region, which have oil and gas revenue to back their funding.

The bond market in the UAE and the region has remained undeveloped because the region is made up of mostly cash-rich governments with huge oil revenues and little need to borrow.

The current funding structure in the region is premised on bank finance and finance from the international markets.

The dislocation in global markets in the last few years has reduced avenues for regional borrowers to tap financing.

'What perhaps the Central Bank is aiming for is to put in place a structure to streamline the debt capital market, to set a benchmark for government to issue bonds and have a curve for people to price off,' the Abu Dhabi banker said, asking not to be named.

Sovereign bond issuances can create benchmarks against which corporate issuers in the region will be able to price their own debt, he added. Central Bank officials did not return calls.-Reuters