Dubai is returning to the bond markets for the first time in almost a year with a planned US$1 billion (Dh3.67bn) debt sale.
The emirate has hired four banks to handle the sale of the Islamic bonds, known as sukuk, as it emerges from a financial crisis that culminated with the $24.9bn restructuring of Dubai World debt between 2009 and 2010.
"The move could lead to lower borrowing costs for UAE companies if the Government's bond sale meets with high demand," said Debashis Dey, the head of capital markets at Clifford Chance, a law firm.
"They will have the benefit of seeing what the market believes is the price of Dubai credit risk," he said.
Dubai last tested credit markets in June when it sold $500 million in bonds with a 10- year maturity.
Dubai is benefiting from an economic rebound in sectors including logistics, travel and retail. Dubai trade grew 22 per cent last year to a record Dh1.1 trillion from Dh902 billion the year before, Dubai Customs said this week. Trade is expected to grow a further 20 per cent this year.
Improving economic sentiment coincides with returning appetite for emerging market debt, which has created more favourable conditions for the emirate as it seeks to raise fresh funds to help refinance existing debts coming due.
The cost of insuring Dubai's debt against default has dropped by almost half since the peak of the Dubai World crisis as recent restructuring progress and a more positive global outlook improves sentiment.
The dual tranche offering will include five-year securities that may be priced at about 5 per cent, while the 10-year bonds may be priced at about 6.5 per cent. HSBC Holdings, Citigroup, Dubai Islamic Bank and National Bank of Abu Dhabi are managing the sale. The Dubai Government's direct debt had fallen by 1.6 per cent at the end of last month from May last year to Dh113.6bn, according to its bond prospectus, Bloomberg News reported.
Asked if Dubai's return to the bond market signalled increased investor confidence, Ala'a Eraiqat, chief executive of Abu Dhabi Commercial Bank, said: "The perception has been in improving," he said. "International market perception, the judgement of analysts' reports, and CDS pricing, have been improving over the past three years."
Outstanding debt of the Government, excluding that of state-owned companies and other liabilities, was 38 per cent of its 2010 nominal GDP of Dh300.8bn, figures in the document show. Dubai stocks rose the most in three weeks as the Dubai Financial Market General Index gained 1.8 per cent to 1,670.05 yesterday.
This month, Dubai International Capital, the investment arm of Dubai Holding, agreed with creditors to restructure $2.5bn of loans.