Dubai plans $1b sukuk

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Dubai plans $1b sukuk

Dubai is all set to launch a dual-tranche Islamic bond, or sukuk, to raise at least $1 billion, the issue arrangers said on Tuesday.

By Issac John

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Published: Wed 25 Apr 2012, 11:16 PM

Last updated: Tue 7 Apr 2015, 2:33 PM

The five- and 10-year benchmark sukuk, backed by real estate assets, is Dubai’s first Islamic bond since 2009. Initial guidance was seen around five and 6.5 per cent, respectively for the two tranches.

The bond proceeds are expected to be used to meet budget deficits and for the refinancing of government debt that has been steadily falling.

According to the bond prospectus, the Dubai government’s direct debt fell 1.6 per cent at the end of March from May last year to Dh113.6 billion.

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 Dubai government had outstanding debt of Dh115.4 billion on May 20, 2011, according to its previous prospectus.

Dubai Islamic Bank, National Bank of Abu Dhabi, HSBC and Citi have been mandated for the potential sale of the sukuk that could be issued as early as today.

Dubai last tapped debt markets in 2011 when it issued a $500 million, 10-year bond with a five-year put option, allowing investors to redeem their investment ahead of maturity at full value. That issue attracted orders over $1.8 billion.

Dubai’s 2020 bond was bid at 110.5 to yield 6.136 per cent on Tuesday afternoon, according to data from Goldman Sachs, down from 110.700 levels at Monday’s close. Dubai set up a $5 billion euro medium term notes, or EMTN, programme last year.

Analysts said given the strong investor demand Dubai’s earlier issues generated, the new sukuk also would be well received on the backdrop of rising global investor confidence in Dubai’s strong economic fundamentals.

Reflecting the emirate’s upbeat outlook, Dubai’s five-year credit default swap spreads dropped to 370 basis points from around 650 basis points recorded in the wake of the Dubai World crisis.

Spurred by a boom in logistics, transportation, tourism and trade, Dubai has staged a strong and decisive come back. Some analysts even expect Dubai’s economy to grow by as much as 4.5 per cent this year, up from three per cent in 2011.

Investors seem to be supportive of the dynamic and prudent steps taken by the government over the past years to address the impact of global financial crisis. In March, the UAE has put on hold plans to issue its first federal sovereign bond, which was widely anticipated by the end of 2012, for two years.

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