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Dubai raises $1.25b in bonds
Issac John / 23 January 2013
DUBAI — Marking the first sovereign Islamic bond sale in the GCC this year, Dubai on Tuesday launched a $1.25 billion two-part conventional and Islamic bond sale to take the advantage of low borrowing costs and speedy economic rebound.
The $750 million 10-year Islamic bond, or sukuk, launched at 3.875 per cent, well inside guidance of four per cent range, while the $500 million 30-year bond sold at 5.375 per cent.
Informed sources said order books on the benchmark-sized sukuk has exceeded $9 billion, underscoring the improved investor perception for Dubai’s credit standing. Dubai’s credit risk dropped more than peers in the Middle East in 2012 as state-linked companies paid and restructured debt.
The bond issue come close on the heels of Dubai’s strategic move to emerge as the global capital of Islamic finance. The plan unveiled by His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, early this month is envisioned to grab a significant share of the Islamic finance market worth trillions of dollars.
Dubai Islamic Bank, Emirates NBD, HSBC Holdings, National Bank of Abu Dhabi and Standard Chartered are arranging the sukuk.
The issuance is the first sovereign sukuk sale in the six-nation GCC this year. Sales of Islamic bonds surged to a record $21 billion in the region last year as borrowing costs plunged. The yield on Dubai’s 6.396 per cent sukuk due in 2014 tumbled 344 basis points, or 3.44 percentage points, in 2012 to 2.13 per cent, the data show.
Dubai’s last sovereign bond issuance was in April, when it sold $1.25 billion of sukuk in two tranches, including $600 million of five-year notes at a coupon of 4.9 per cent. It also raised $650 million of 10-year bonds at a 6.45 per cent coupon. The offering secured $4.5 billion in bids.
The cost of insuring Dubai’s unrated bonds for five years has retreated 14 basis points this month to 211 on January 18, according to data provider CMA, which is owned by McGraw-Hill Cos and compiles prices quoted by dealers in the privately negotiated market.
Dubai plans to create an Islamic finance council to regulate equity and fixed-income products as it seeks to become a hub for the industry, taking on centers such Bahrain and Malaysia, home to the world’s biggest sukuk market. Islamic finance will become one of the economy’s “core” industries.
The UAE, with an estimated $75 billion of total Islamic assets, is the third largest global market for the Shariah-based banking industry whose total assets are poised to soar to $1.8 trillion in 2013.
Saudi Arabia, with an estimated $207 billion of Islamic assets in 2011, was ranked first in the world, according to Ernst & Young.
In the first half of 2012, corporate issuances from the UAE, raised a total of $7.3 billion to lead the market in terms of issuances at 49, representing 70 per cent of the total number of issuances in the GCC.
In contrast to a dismal overall market scenario, which saw the aggregate primary issuance of bonds and sukuks in the GCC dropping 18.7 per cent to $37.6 billion in the first half of 2012, issuances by UAE entities raised the largest amount accounting for 36.4 per cent of the total amount, or $ 8.5 billion.
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