DEWA bond sale a vote of confidence

DUBAI — In a resounding vote of confidence in Dubai’s corporate debt market, Dubai Electricity and Water Authority’s (DEWA) $2 billion two-tranche bond witnessed demand in excess of $13 billion, the state-owned utility said on Friday.

By Suresh Pattali

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Published: Sun 17 Oct 2010, 12:41 AM

Last updated: Mon 6 Apr 2015, 4:27 PM

The oversubscription by 6.5 times of the DEWA bond — split across two tranches of $500 million maturing in October 2016 at a yield of 6.375 per cent and $1.5 billion maturing in October 2020 at 7.375 per cent — comes close on the heels of the Dubai government’s raising of $1.25 billion last month from bond sale. Dubai received orders above $5 billion for its two-part bond sale, which was the emirate’s first sovereign issue since sate-owned Dubai World’s $24.9 billion debt restructuring plan won majority creditor approval last month.

The Dubai government sold $500 million of five-year bonds priced to yield 6.7 per cent and $750 million of 10-year debt with a 7.75 per cent yield on September 29, according to data compiled by Bloomberg. The 10-year bonds traded at 102.7 cents on the dollar to yield 7.36 per cent on Friday in Dubai, a 37 basis-point decline since they began trading on September 30, the data show.

“The ultimate aggregate orderbook closed in excess of $13 billion, with over 380 accounts showing interest in the six-year offering while around 470 investors put in orders for the 10-year bond,” DEWA said in a statement.

Around 30 per cent of the offering was placed with US investors, 38 per cent in Europe, while Asia and the Middle East accounted for 16 per cent each, the utility said.

This is DEWA’s second foray into the debt capital markets in 2010. “The proceeds of the fund raising exercise are intended to support DEWA’s capital expenditure and other investment plans,” the statement said.

Observers say the swelling interest in Dubai’s debt market reflects international confidence in Dubai’s recovery.

“The MENA debt markets have underperformed global emerging markets to date. However, the DP World restructuring, the Dubai bond issue and $80 crude oil have dramatically improved investor sentiment,” Matein Khalid, Adviser, Capital Markets, Bin Zayed Group, said.

“DEWA offers a huge 500 point plus yield pick up over US Treasuries on its paper. This is a compelling valuation for emerging market debt fund managers in Europe and the US who are underweight Dubai debt since 2008 in any case. In short, Dubai is back,” he added.

In preparation for the latest bond issue, the utility held a series of investor meetings in London, New York and Boston. Lead managers are Citi, Credit Agricole, National Bank of Abu Dhabi, RBS and Standard Chartered, bankers said. Prior to the offering, the rating agency Moody’s changed its outlook on DEWA from ‘Stable’ to ‘Positive’.

“The change in the outlook to positive reflects the constructive impact of Dewa’s ongoing efforts to extend its debt maturity profile, thereby strengthening its liquidity profile,” the agency said on Wednesday.

Reacting to the investor response, Saeed Mohammad Al Tayer, Managing Director and Chief Executive Officer of DEWA, said: “We are delighted to have established longer-dated maturities for the company which will support our capex plans and other investments.”

He said DEWA would continue to offer an attractive investment opportunity to international fixed income investors. “This is an affirmation of the continuing investor confidence in the Dubai credit story,” he added.

Nasser Akil Abbas, DEWA’s Senior Director of Treasury, who spearheaded the investor meetings, said: “We remain highly impressed with the level of understanding the fixed income investor community has shown towards our company.”

The latest Dewa bond sale comes after the utility company issued a $1 billion five-year bond in April, which offers a coupon of 8.5 per cent. Dewa’s profit declined 8.6 per cent to Dh1.5 billion in the six months to June, according to the bond prospectus. The company as at August 31 had debt of Dh24.6 billion.

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