Dubai’s government may raise more than $1 billion from a planned sale of Islamic bonds and has mandated five banks including HSBC Holdings Plc (HSBA) for the offering, according to two people familiar with the deal.
Standard Chartered Plc (STAN), Emirates NBD PJSC (EMIRATES), Dubai Islamic Bank PJSC (DIB) and National Bank of Abu Dhabi PJSC have also been hired for the sale of sukuk, the people said, asking not to be identified because the information is private. A sale may start as soon as tomorrow, according to one of the bankers. Reuters reported the story earlier today.
The planned issuance will be the first sovereign sukuk sale in the six-nation Gulf Cooperation Council this year, according to data compiled by Bloomberg. Sales of bonds that comply with Islam’s ban on interest surged to a record $21 billion in the region last year as borrowing costs plunged. The yield on Dubai’s 6.396 percent sukuk due in 2014 tumbled 344 basis points, or 3.44 percentage points, last year to 2.13 percent, the data show.
“Investor’s perception for Dubai credit risk has improved significantly in 2012 and the strong risk-on momentum continues into 2013,” said Apostolos Bantis, a credit analyst at Commerzbank AG in London. “Despite the improved sentiment for Dubai’s credit story the emirate has high refinancing needs and taking advantage of the current low-rates environment is a very good strategy.”
Dubai, the second-biggest sheikhdom in the United Arab Emirates, went on a borrowing binge to turn itself into a regional hub for commerce, transport and financial services, before teetering on the brink of default in 2009. The emirate’s credit risk dropped more than peers in the Middle East last year as state-linked companies paid and restructured debt.
The cost of insuring the emirate’s unrated bonds for five years has retreated 14 basis points this month to 211 on Jan. 18, according to data provider CMA, which is owned by McGraw- Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The government’s last 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 percent. It also raised $650 million of 10-year bonds at a 6.45 percent coupon. The offering secured $4.5 billion in bids.
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 government said this month.
The premium investors demand to own Dubai’s bonds over Malaysia’s 3.928 percent Shariah-compliant notes due June 2015 narrowed five basis points this month to 75 as of Jan. 18.
A spokeswoman for the Dubai government said she couldn’t immediately comment on the debt-issuance plans. A spokesman for HSBC couldn’t immediately be reached, while spokesmen for Standard Chartered in Dubai and Dubai Islamic Bank couldn’t immediately comment. A spokesman for Emirates NBD declined to comment. A spokesman for National Bank of Abu Dhabi said the lender doesn’t comment on client issues.