The Dubai government kicked off a non-deal roadshow for a
global bond this week to refinance a $1bn sukuk, in a rare
foray into international bond markets for the debt-ridden,
Officials from the Dubai finance
ministry met fixed income and Islamic finance investors in Hong
Kong on Thursday via arrangers Dubai Islamic Bank, Mitsubishi
UFJ Securities, Standard Chartered and UBS. Meetings are
scheduled in Singapore, Dubai, London, Frankfurt and finish on
Dubai is saddled with an estimated $80bn of state-related debt
after bingeing on cheap debt in the global bull run.
Government officials will gauge investor appetite during the
meetings and then decide whether to issue a global bond in the
next two weeks. A banker involved in the deal said: "The
meetings are simply an intention to meet and greet investors.
Details of a deal have not been discussed. This is all at very
Market players say a public debt offering is aimed at
refinancing a $1bn 2004 global sukuk that matures on November
4. Dubai issued it through a special purpose vehicle, to
finance the development of the Dubai International Airport. The
bond was priced at par with a coupon of 45bp over Libor and
international investors made up 23% of the order book.
Bankers away from the deal say any new debt issue from
non-rated Dubai will probably comprise two tranches in dollars
and dirhams and a minimum $1bn equivalent issue is expected, to
pay off the maturing sukuk.
The sovereign priced its only international bond deal in April
2008. The Dh6.5bn ($1.8bn) dual tranche issue comprised a Dh4bn
five year floating rate tranche priced at 53bp over the
Emirates interbank rate (Eibor) and a Dh2.5bn five year fixed
rate portion with a 4.25% coupon. Around 60% of the deal was
sold to local accounts.
Bankers expect foreign investors to demand a premium for any
new Dubai credit. The 2013 floater is trading at 390bp in Eibor
terms while Dubai CDS is 200bp wider than that of Abu
Dicing with debt
Market players expect Dubai to rely heavily on local
accounts to snap up the deal despite the inclusion as arranger
of Mitsubishi with its Asia debt distribution
"Dubai can easily get $500m worth for a dirham portion from
local accounts that simply want to roll over their existing
exposure," said a Dubai banker away from the deal. "A further
$100m to $200m of a dollar portion can be bought by locals
too." In this format, Asian and European banks the
primary foreign investor base for Dubai credit as other
accounts shun unrated deals would represent a small
share of the order book.
This low reliance on foreign investors would allow Dubai
government officials to sidestep explaining Dubais plan
to address its huge debt burden during the investor meetings,
said market players. "The question is will officials at the
finance ministry feel comfortable going in front of foreign
investors and explaining Dubais debt problems? Probably
not," said a banker in Dubai.
A $1bn global bond would be a drop in the ocean given the
sheikhdoms huge financing needs. In February, the Abu
Dhabi-based central bank of the United Arab Emirates lent the
Dubai government $10bn in a five year loan with a 4% coupon,
priced at par.
This was the first package of a $20bn bond programme to rescue
the emirates debt-laden state-backed companies. Recent
comments from government officials suggest Dubai is looking to
raise the additional $10bn by the end of the year.
However, Dubai has limited access to international commercial
markets as a non-rated issuer. "They need to issue with a
rating. It makes them look like a poor cousin to Qatar and the
other rated emirates that have issued this year," said a Dubai
banker at a French bank.
Around half of Dubais $80bn debt is carried by Dubai
World, the state holding company. Dubai has around $5bn of debt
maturing between September and the end of the year, according
to Standard & Poors. Around $3.52bn of this is held
by Nakheel, a unit of Dubai World, and is due in
This week Dubai-based Emirates NBD was rumoured to have
postponed a roadshow via Barclays, HSBC and UBS after
government pressure. "They got a call from the finance ministry
saying that there would be too much market traffic if both the
bank and Dubai went on the road," said a market source.
But the leads deny a roadshow for an expected five year
benchmark was scheduled before the first week of