LONDON, (Reuters) – Dubai may launch a dollar-denominated Islamic bond as early as the third quarter of this year after well-received presentations to investors last week, banking sector sources familiar with the roadshow said on Monday.
One source at the arrangers of the roadshow — run by HSBC and Mitsubishi UFJ — declined to confirm whether Dubai might issue a bond later this year.
But a fund manager familiar with the presentations said they had pointed to a 7-10 year sukuk, and a senior fixed income trader said the issue could come in the third quarter.
“The arrangers said the reception was very good, they are talking about a 7-10 year sukuk,” said one European fund manager.
Dubai went on a non-deal roadshow, meeting non-Islamic investors in Switzerland, France, Germany and Britain between June 4-10, in a mixture of presentations and one-to-one meetings, investors said.
The presentations were designed to show Dubai’s general macro-economic outlook, without any specific deal plans, a source at one of the arrangers said.
“There was a very strong reception,” the source added. But pressed on whether a bond deal was in the works, the source declined to comment.
Dubai issued a five-year dollar and dirham two-tranche sukuk in Oct 2009, shortly before state-owned conglomerate Dubai World rocked markets with a standstill request on billions in debt payments.
The Islamic bond has been strengthening after Dubai World announced a well-received restructuring last month. Dubai’s $1.25 billion 5-year tranche was trading at 96 AE046342208= on Monday, giving a yield of 7.48 percent.
A sukuk would likely be offered at more generous pricing than a conventional bond, providing a carrot for investors, fund managers said.
“I reckon there could be an issue sooner than later,” said one fixed income head familiar with Dubai’s presentation.
“Q3 now looks more of a possibility,” he said.
Dubai’s 2010 budget deficit was projected at 6 billion dirhams ($1.63 billion), the government said in January, but Dubai officials were indicating a slightly smaller deficit of $1-1.5 billion, the European fund manager said.
“Dubai could issue $1 billion at least,” he added.
However, issuance may be delayed by Dubai’s need to get a credit rating, a prerequisite for many investors to buy international debt.
The United Arab Emirates has a rating of Aa2 from Moody’s but Dubai does not have its own rating.