Returning To Public Debt Markets After Six Years, Dubai Gets $2 Billion

DUBAI: The government of Dubai sold $2 billion in dual-tranche bonds on Wednesday, its first sale in public debt markets in six years, as it seeks to boost finances hit by the coronavirus crisis.

Dubai sold $1 billion in 10-year sukuk, or Islamic bonds, at 210 basis points (bps) over mid-swaps and $1 billion in 30-year conventional bonds at 4%, according to a document issued by one of the banks leading the deal and seen by Reuters.

It received more than $6.5 billion in orders for the sukuk and over $3.5 billion for the bonds.

“There is no value in the sukuk but there will be local buyers,” a fund manager who declined to be named said on the initial pricing, which was tightened during book-building by 40 bps for the sukuk and 37.5 bps for the conventional notes.

“It’s attractively priced for Dubai … less money on the table for investors,” said Tim Ash, emerging markets senior sovereign strategist at BlueBay Asset Management.

The Middle East trade and tourism hub’s first public debt issuance since 2014 comes amid a sharp economic downturn that has revived concern over its finances and revived memories of the 2009 debt crisis that wobbled its economy.

That crisis caused Dubai’s real estate market to crash, threatening to force some state-linked companies to default on billions of dollars of debt. Its oil-rich neighbour Abu Dhabi and the UAE central bank provided Dubai $20 billion of debt in its aftermath, facilities that were refinanced for five years in 2018 and 2019, a bond prospectus showed.

OUTSTANDING DEBT

Dubai has budgeted a $3.2 billion deficit this year, the prospectus showed.

It also showed that while the government’s direct debt amounted to nearly $34 billion at the end of June, Dubai had no consolidated estimates for the outstanding total debt of government-related entities.

“It’s always been one of the big negatives of Dubai, but it’s really the worst-kept secret. Clearly the market doesn’t take the numbers at face value either,” a second fund manager said, adding spreads on Dubai’s existing bonds are not “commensurate with what the headline debt and deficit numbers suggest”. The fund manager also declined to be identified.

Dubai is unrated, which may exclude a pool of investors from its debt offering, said advisory and research firm Azure Strategy.

“A rating process would require a more granular disclosure of Dubai’s credit profile,” it said in a report on Tuesday.

In July, ratings agency S&P said Dubai’s economy could shrink 11% this year, as it cut the credit ratings of two of the emirate’s biggest property firms to “junk” status.

The issuance comes as the United Arab Emirates and Israel work to promote investment between the two countries, after agreeing to normalise relations last month.

(Additional reporting by Saeed Azhar; Editing by Clarence Fernandez and Alison Williams)

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