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, non-rated emirate.
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 Tuesday.
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 early stages."
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 Dhabi.
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 capabilities.
"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 December.
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 November.