Text size:

  • Small
  • Normal
  • Large
Borrowers are also being helped by very low interest rates and weakening perceptions of risk in Dubai. Pawan Singh / The National
Borrowers are also being helped by very low interest rates and weakening perceptions of risk in Dubai. Pawan Singh / The National

Dubai launches $5 billion international bond programme

The time is right for the emirate as interest rates hit year low and risk concerns ease markedly.

The Dubai Government is preparing to raise billions of dollars on international bond markets as interest rates hit their lowest levels in more than a year and perceptions of risk continue to ease.

Dubai has launched a US$5 billion (Dh18.36bn) bond programme as it gears up for a possible debt sale to increasingly receptive international investors.

That follows a widening window of opportunity for borrowers in the UAE, observers say. With bond sales in other parts of the region taking a hit in the wake of unrest in parts of the Middle East and North Africa, UAE debt is seen as increasingly attractive.

Borrowers are also being helped by very low interest rates and weakening perceptions of risk in Dubai. "Markets have tightened materially since the beginning of the political crisis in [parts of] the Middle East," said Ziad Shaaban, the director of fixed income at EFG-Hermes in Dubai.

"It's a very good window for [Dubai], and they will make use of such a window any time they can. It's definitely a good time for them to come out and issue some debt."

Dubai's credit default swap prices, which measure the cost of insuring debt against default, have recently fallen to 18-month lows, a further indication worry is easing over the emirate's ability to service its borrowings.

At yesterday's market close, it would cost an investor 3.3 per cent a year of his holdings in Dubai Government bonds to insure them for five years.

The reference six-month London interbank offered rate (Libor), meanwhile, has dipped by about 13 per cent since the end of March, reflecting improving conditions for prospective borrowers worldwide.

"The benchmark rates are very low, and credit spreads, particularly for the Dubai complex and the region in general, have tightened and have pretty much recovered from the widening they experienced with the political unrest," said Abdul Kadir Hussain, the chief executive of Mashreq Capital in Dubai.

"There isn't a lot of new debt coming out from this region and in terms of the political aspect, the UAE is seen as a bit of a safe haven," he said.

Total bond sales in the Middle East and North Africa amount to about $12.5bn so far this year, Mr Shaaban said. A little less than half of that amount was sold last month, demonstrating a renewed appetite for fund-raising at the beginning of the summer.

While the prospects for borrowers in the UAE are strong, questions linger about how long the good times will last amid a string of bad economic data from the US and continuing issues with sovereign debt in Europe.

In addition, any potential issuance would have to come soon because the UAE's credit markets are likely to take a breather in the coming months, said Mark Watts, the head of fixed income at the National Bank of Abu Dhabi.

"The window of opportunity to come out and take advantage of these tightened spreads is open only for another four weeks," he said.

"Because of the [summer] heat of the region, people will be going on holiday. July is going to be a dead period, and in Ramadan people don't bring issuances to the market around that period.

"If you don't make that window, you'll have to wait until September," he said.

Dubai and its government-controlled companies are also expected to borrow billions of dollars more in the coming months, with about $12bn in additional debt repayments coming up this year, according to EFG-Hermes' estimates.

Dubai's potential bond issuance would be its first since revolutions toppled regimes in Egypt and Tunisia. Its last sale was in September, when it raised $1.25bn.

But, following recent bond sales by the Dubai Electricity and Water Authority and Emirates Airline, most other companies were not in an ideal position to access credit markets, said one banker at a UAE investment bank who asked not to be named.

"Very few government-related entities are qualified to tap debt capital markets now at acceptable rates," he said.

afitch@thenational.ae

ghunter@thenational.ae

Back to the top

More articles


Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 A sign points the way to an outdoor market popular with German visitors on the Polish side of the German-Polish border. Sean Gallup / Getty Images

In pictures: A decade since the European Union went east

May 1 will mark 10 years since the European Union expanded east, taking in countries like Poland, the Czech Republic and the Baltic states as new members. And though the border region between Germany and Poland is flourishing with trade and cultural exchange, the open border has also brought a sharp rise in crime.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National