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Dubai in big debt market return with USD1.25bn sale


23 Jan 2013 05:26 GMT   التعليقات ()       إضافة تعليق       طباعة       إرسال لصديق


* Dubai to raise $1.25 bln from two-part debt sale

* Dubai to raise at least $500 mln from sukuk sale

* $750 mln sukuk launches at 3.875 pct, $500 mln 30-yr bond at 5.375 pct

* Govt adds 30-year conventional portion on solid demand

* HSBC, NBAD, Stanchart, Dubai Islamic and ENBD on deal

* Emirate to benefit from low borrowing costs, economic revival

(Adds detail, comment, recasts lead)

By Rachna Uppal

DUBAI, Jan 22 (Reuters) - Dubai used its first big debt sale of 2013 on Tuesday to show the world the glitzy desert city-state had well recovered from its credit crisis of four years ago, as investors scrambled to get a piece of the $1.25 billion deal.

The unrated emirate launched a $750 million 10-year Islamic bond, or sukuk, as well as a $500 million 30-year conventional bond, as it seeks to lock in longer-term funding at among the lowest borrowing costs available to it.

The sukuk launched at 3.875 percent, well inside guidance of 4 percent released earlier in the day, owing to strong demand with order books estimated at over $9 billion. This propelled the emirate to add a longer-dated 30-year conventional portion to the deal after order books for the sukuk had closed.

The 30-year bond launched at 5.375 percent, at the tighter end of initial guidance.

"The 30-year portion will allow Dubai to get longer-dated money and extend its debt maturity profile. It takes significant investor appetite to print such a long tenor," said one regional banker, declining to be identified.

"Dubai's whole problem back in 2009 and 2010 was long-term projects and investments funded by short-term debt, a cash flow problem. Such longer-dated funding is exactly what they need."

Dubai Islamic Bank ( DIB ), Emirates NBD , HSBC Holdings , National Bank of Abu Dhabi and Standard Chartered are arranging the sukuk, while the same banks, minus DIB , are bookrunners on the 30-year bond.

The emirate last tapped markets in April with a $1.25 billion sukuk sold in two tranches, its first Islamic bond sale since a debt crisis in 2009 that undermined investor confidence. Dubai also issued dollar bonds in 2010 and 2011.

The new sukuk, which according to its prospectus will be Dubai's only 2023-dated bond, will help to lengthen the average maturity of the government's debt.

"Long-dated dollar swap rates have started to climb in the last two months, while Dubai's 10-year credit spread has fallen, so it looks like this issue seeks to lock in a low long-term cost of financing before the window of opportunity may close," said Paul Bateman, senior risk manager at Bank of London and the Middle East, in London.

"Demand for dollar sukuk remains strong and the economic outlook continues to improve in the UAE, so the transaction is likely to be well received by investors despite the absence of a credit rating."

RECOVERY

Dubai, which boasts the world's tallest building and islands in the shape of palm trees, rocked global markets in late 2009 when state-owned conglomerate Dubai World announced a $25 billion debt restructuring. The crisis coincided with a dramatic collapse of the emirate's property market.

Dubai has striven since to regain its credibility among international investors, successfully refinancing or restructuring debt and benefiting from its status as a regional safe haven amid the Arab Spring civil uprisings.

The cost of insuring its debt against default, a measure of investor confidence, has fallen to multi-year lows, with five-year credit default swaps trading at 211 basis points on Monday.

Dubai expects its economy to grow by more than 4 percent in 2013, slightly more than is forecast for last year.

Its direct government debt as at 31 December 2012 was 122 billion UAE dirhams ($33.21 billion), according to the sukuk prospectus. In 2013, this said Dubai faces public debt maturities of 6.5 billion dirhams ($1.77 billion).

The total portfolio value of Dubai's main investment fund, the Investment Corporation of Dubai (ICD), stood at 20.7 billion dirhams for listed companies, including stakes in Emirates NBD

and Emaar Properties , and 87.7 billion dirhams for unlisted companies, which include Emirates airline.

Dubai Inc entities including state utility Dubai Electricity and Water Authority are expected to tap debt markets after the sovereign to take advantage of low borrowing costs. ($1 = 3.6730 UAE dirhams)

(Additional reporting by Mala Pancholia; Editing by Stephen Nisbet)

((davidj.french@thomsonreuters.com)(+971 4 362 5864)(Reuters Messaging: davidj.french.thomsonreuters.com@reuters.net))

Keywords: EMIRATES DUBAI/SUKUK

© Copyright . All Rights Reserved.

* Price guidance at low 4 pct area, demand seen strong

* HSBC, NBAD, Stanchart, Dubai Islamic and ENBD on deal

* Emirate to benefit from low borrowing costs, economic revival

(Adds detail, background)

DUBAI, Jan 22 (Reuters) - Dubai will sell a 10-year Islamic bond, or sukuk, of least $500 million in size on Tuesday, arranging banks said, using its first big debt issue of 2013 to lock in low borrowing costs.

Dubai Islamic Bank , Emirates NBD , HSBC Holdings , National Bank of Abu Dhabi and Standard Chartered are arranging the sukuk.

The emirate last tapped markets in April with a $1.25 billion sukuk sold in two tranches, its first such sale since a debt crisis in 2009 that undermined investor confidence. Dubai also issued interest-bearing dollar bonds in 2010 and 2011.

The new issue, which according to its prospectus will be Dubai's only 2023-dated bond, will help lengthen the average maturity of the government's debt.

Pricing is expected to be in line with Dubai's $650 million 2022 sukuk, issued last April, which was yielding about 4 percent on Tuesday - much less than its yield at launch of 6.45 percent.

That equates to a z-spread of about 230 bps, traders said. The z-spread is a pricing tool that calculates the number of basis points that need to be added to a zero-coupon yield curve to make the bond's discounted cash flows equal the bond's present value.

Market sources said orders for the sukuk were already seen at more than $4 billion at 0830 GMT. Strong demand for the deal could allow Dubai to raise $1 billion or more.

"Given the liquidity and the demand for the paper, I would not be surprised if the issuer could issue the paper at 4 percent," said one regional fixed income trader.

RECOVERY

Unrated Dubai, which boasts the world's tallest building and islands in the shape of palm trees, rocked global markets in late 2009 when state-owned conglomerate Dubai World announced a $25 billion debt restructuring. The crisis coincided with a dramatic collapse of the emirate's property market.

Dubai has striven since to regain its credibility among international investors, successfully refinancing or restructuring debt and benefiting from its status as a regional safe haven amid the Arab Spring civil uprisings.

The cost of insuring its debt against default, a measure of investor confidence, has fallen to multi-year lows, with five-year credit default swaps trading at 211 basis points on Monday.

Dubai expects its economy to grow by more than 4 percent in 2013, slightly more than is forecast for last year.

Dubai's direct government debt as at 31 December 2012 was 122 billion UAE dirhams ($33.21 billion), according to the sukuk prospectus. In 2013, it faces public debt maturities of 6.5 billion dirhams ($1.77 billion) according to the prospectus.

The total portfolio value of Dubai's main investment fund, the Investment Corporation of Dubai (ICD), stood at 20.7 billion dirhams for listed companies, including stakes in Emirates NBD

and Emaar Properties , and 87.7 billion dirhams for unlisted companies, which includes Emirates airline.

Dubai Inc entities including state utility Dubai Electricity and Water Authority are expected to tap debt markets after the sovereign to take advantage of low borrowing costs.

($1 = 3.6730 UAE dirhams)

(Reporting by Mala Pancholia and Rachna Uppal; Editing by Catherine Evans)

((davidj.french@thomsonreuters.com)(+971 4 362 5864)(Reuters Messaging: davidj.french.thomsonreuters.com@reuters.net))

Keywords: EMIRATES DUBAI/SUKUK

© Copyright . All Rights Reserved.

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