There has been fear that decades of enmity between the two could spill over into all-out war
Dubai priced the bond at 5.591 per cent, said IFR, a Thomson Reuters company, citing leads. “The Emirate of Dubai has priced a $500 million 5.591 per cent 10-year put five Reg S bond at the tight end of the five-year mid-swaps plus 375bp-385bp guidance, at par, according to the leads Emirates NBD, HSBC, RBS and UBS,” IFR said.
“It is a small bond issue. On the other hand, this also could be good for pricing,” said Michael Ganske, Head of emerging market research at Commerzbank in London. “500 million is not a lot.”
Spreads have narrowed to attractive levels in the last few months, in part due to Dubai’s perceived safe-haven status and relative political stability. Regional banks and other state-linked firms are also tapping the market, thanks to global demand and attractive pricing.
“I think it is a fair price. Without a proper environment, which is very supportive for bond issuance from the emerging markets, clearly they would probably not be able to come back,” Ganske said. Dubai’s latest bond includes a put option after five years, allowing investors to redeem their investment ahead of maturity at full value. The structure is not commonly used for issues from the region.
“One of the factors that may affect demand for this deal is that the 10-year maturity with five-year put is a new structure for investors in this region,” said Chavan Bhogaita, head of markets strategy department at the National Bank of Abu Dhabi.
Dubai last came to the bond market in September 2010 when it issued a dual-tranche $1.25 billion bond. It was oversubscribed by four times and reflected increased global investor demand for higher yields. Earlier this month, Dubai flag carrier Emirates issued a five-year, $1 billion bond with a spread of 330 basis points over five-year mid swaps.
“Dubai’s pricing was always expected to be wider compared with that of Emirates Air, but it’s still quite good from the emirate’s point of view,” said one analyst at an Abu Dhabi-based bank.
Luis Costa, a London-based emerging markets strategist at Citigroup Global Markets Ltd in a phone interview said: “Given the noise around the Dubai credit in the past year, I tend to believe that this spread is relatively tight.”
Dubai’s budget gap is set to narrow to Dh3.8 billion ($1 billion) this year, the lowest level since 2007, according to the bond prospectus. The emirate will use proceeds from the bond sale for construction spending and the budget. The government of Dubai earlier this week, in its base prospectus, said it increased the size of its EMTN programme to $5 billion, from $4 billion previously, as the state looks to raise more cash to bridge its budget deficit and finance growth.
Several companies in the UAE have, or are in the process of, tapping the bond market. A senior Deutsche Bank executive said on Tuesday the wider Middle East and North Africa primary bond market may reach or exceed last year’s value of $40 billion on the back of improved pricing and increased borrowing requirements.
With inputs from Agencies
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