DUBAI, (Reuters) – Dubai aims to cash in on strong demand for high-yielding emerging market debt when it returns to debt markets this week, its first foray since the Dubai World crisis.
Analysts said the Gulf Arab emirate’s planned dollar bond issue, weeks after its flagship conglomerate clinched a debt restructuring deal, was timed to take advantage of more favourable market conditions than at any time since the Dubai crisis broke.
The glitzy emirate has been climbing out of a massive debt hole over the past year, restructuring billions in debt owed by state-linked companies.
“Dubai needs the money,” said Robert McKinnon, chief investment officer at ASAS Capital. “The Dubai World issue, a black cloud hanging overhead for a long time, is out of the way now. This is probably the best time to go to the market.”
“The most important point here is Dubai is increasing transparency by going to the market. Going to the market for funds definitely says that Dubai is showing some confidence.”
Earlier this month, Dubai World, whose debt standstill news in November 2009 shook global markets and savaged Dubai’s reputation, reached a formal deal to restructure $24.9 billion in debt.
The emirate, including its state-owned firms, is estimated to have more than $100 billion in overall outstanding debt.
Dubai said on Monday it would launch a benchmark dollar bond soon through the government’s EMTN (European Medium-Term Note) programme launched in April 2008. The emirate last tapped markets in October 2009, just before the debt crisis.
Banking sources said the bond is likely to total at least $750 million for a five-year tranche and up to $500 million for a 10-year tranche. Pricing was expected on Tuesday.
“The motivation for the timing is that market conditions are probably more favourable now than at any other time year-to-date,” said Khatija Haque, economist and vice president at Shuaa Capital.
“If the bond issue is well received and there is sufficient demand, we would not be surprised if Dubai raised more than $1 billion.”
Haque said the emirate was also likely keen to keep building a yield curve — it issued bonds in the third or fourth quarters in both 2009 and 2008 — and help set a benchmark for other government-related firms which may come to the market.
Investor hunger for decent yields, particularly in emerging markets, may help make Dubai’s return a success. Early price talk for the 5-year tranche had yield guidance in the 6.875 percent area and at 8 percent for the 10-year tranche, market sources said.
“The objective here is to be able to raise funds at lesser cost of borrow,” said Mohammed Yasin, chief investment officer for CAPM Investment. “Last year, the $1.25 billion sukuk was priced at 6.39 percent. If the new offer is below 6 percent, that would represent a success.”
The overall interest in this bond and potential oversubscription may boost market sentiment, said Fadi Al Said, lead fund manager for ING Investments’ MENA fund and head of MENA equities. “There are indications that it is gaining a lot of interest among investors.”
“The Dubai government will definitely set a benchmark with this issue. It will set a yield curve based on which other entities from the region may issue debt in the future.”