Dubai sukuk sale raises $1.25b

The Dubai government launched a $1.25 billion two-tranche Islamic bond, or sukuk, on Wednesday. The five and 10-year benchmark sukuk, backed by real estate assets, is Dubai’s first Islamic bond since 2009. According to issue arrangers, the sukuk was sold at the lower end of an earlier indicated yield guidance, signalling healthy appetite for the emirate’s latest debt market foray. The $600 million five-year tranche was launched at 4.9 per cent and a $650 million 10-year tranche was at 6.45 per cent. Final guidance issued earlier on Wednesday had been tighter than initial indications from the previous day. Reportedly, order books were almost $4 billion when books closed at about 0830 GMT. The new bonds were already trading higher in the grey market, an indication of demand for the deal, according to Reuters. The five-year tranche was trading 0.25/0.50 higher while the 10-year part was up 0.20/0.45 per cent, according to two regional traders. “The continued pickup in Dubai’s economy, led by the external sectors, should support demand for the issue along with the strong appetite for Islamic bonds,” said Monica Malik, chief economist at EFG Hermes. Dubai Islamic Bank, National Bank of Abu Dhabi, HSBC and Citi are the mandated bookrunners on the new deal. Proceeds of the issue will be used to cover the budget deficit and refinancing debt. Dubai’s budget deficit narrowed sharply to Dh3.7 billion last year, helped by higher oil revenues and lower spending on development projects, a sovereign bond prospectus produced by the emirate showed. The Dubai government’s direct debt fell 1.6 per cent at the end of March from May last year to Dh113.6 billion while outstanding debt of the government, excluding that of state-owned companies and other liabilities, was 38 per cent of its 2010 nominal gross domestic product of Dh300.8 billion. The government has direct public notes’ maturities of Dh6.5 billion in 2013, according to the prospectus, and just over Dh7 billion in 2014. In addition, related party debt, consisting of a $20 billion facility borrowed from Abu Dhabi in 2009 also matures in 2014. Investment bank Exotix said in a report that two-third of bank debt restructuring in Dubai are now complete following the resolution of Dubai International Capital’s $2.5 billion restructuring, The London-based bank said last week that there had been 11 debt restructuring situation across various Dubai government related entities, or GREs, totalling $34 billion in debt since the start of the Dubai World crisis in 2009. Six of these restructuring, totalling $21.9 billion are now complete, Exotix said. The bank estimates Dubai GREs still have $12.2 billion in bank debt negotiations outstanding, after completing several restructurings in the last year. EFG-Hermes, Middle East leading investment bank, recently raised Dubai’s market ranking to “overweight” from neutral as the emirate restructured its debt. Another GRE, Drydocks World - Dubai, a shipbuilding and repair conglomerate, also announced that it got an overwhelming backing from majority of its lenders” for its $2 billion debt restructuring bid.