Dubai debt deal signals go ahead for bond sale

Govt bonds and sukuk outperform Gulf peers

By (Bloomberg)

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Published: Tue 28 Jan 2014, 2:13 PM

Last updated: Tue 7 Apr 2015, 10:19 PM

Dubai striking a $10 billion debt accord makes it an attractive time for the emirate to sell Islamic bonds, according to Mashreq Capital DIFC Ltd.

Government bonds and sukuk outperformed Gulf peers as Dubai Group worked toward a deal that was announced on January 23 after more than three years of negotiations. The agreement adds momentum to Dubai’s recovery and signals the time is right to sell debt, according to Mashreq Capital.

Four years after the global financial crisis, Dubai’s hotels are full, the airport is busier than ever and property developers are rolling out new projects.

The government and state-linked companies have about $30 billion of debt maturing this year, according to estimates by the International Monetary Fund, and the emirate plans to spend about $8.1 billion preparing to host the World Expo in 2020.

“It’s a great time to sell, not only because of Dubai Group, which obviously improves sentiment around Dubai, but also because of where benchmark rates are,” Abdul Kadir Hussain, who oversees about $700 million as CEO at Mashreq, said by phone. “It’s a nice opportunity to lock-in funds at decent rates.”

The yield on benchmark US 10-year Treasuries, which climbed as high as 3.03 per cent last year, fell 27 basis points this month to 2.7571 per cent on Monday at 4:46pm in Dubai.

Dubai’s $650 million sukuk due in May 2022 returned 2.4 per cent last quarter, according to data compiled by Bloomberg. That compares with an average return of 0.5 per cent for sukuk in the Middle East, according to JPMorgan Chase & Co indexes.

Dubai Group lenders agreed last week to extend the maturity for a combined $6 billion of secured debt to December 2016 and for partially secured and unsecured loans to December 2024. A further $4 billion of related party liabilities were subordinated to the bank debt.

Any Dubai debt sale would come amid a torrid period for emerging markets securities.

A political graft scandal in Turkey, social unrest in Ukraine and violence in Egypt triggered an investor flight last week, weakening currencies and stocks. The average yield on emerging markets bonds rose 16 basis points, or 0.16 of a percentage point, in the week to 5.97 per cent January 24, according to JPMorgan indexes.

The central bank bought $10 billion of five-year bonds sold by Dubai in February 2009. Abu Dhabi provided the same amount later that year. Dubai’s credit-default swaps, contracts for insuring its debt against default for five years, climbed to 660 basis points in 2010, according to data compiled by Bloomberg. The contracts were at 215 on Monday.

The emirate’s economy expanded 4.9 per cent in the first half of 2013, according to the statistics office, driven by 14 per cent growth in hotels and restaurants. More than 60 million passengers moved through Dubai’s airport in the first 11 months of last year, beating the 2012 total. Emaar Properties, said on Sunday it will start selling villas in a new Spanish-style community, the latest in a line of projects announced.

Dubai has a three-year plan to become the centre of Islamic finance, e-commerce, fashion and arts, education, tourism, standards and certification, and an export and re-export hub of halal food, the government said in October.

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