x Abu Dhabi, UAETuesday 25 July 2017

Dubai’s Islamic bonds are the world’s best-performing sovereign dollar sukuk this quarter as the economy of the Arabian Gulf business hub gathers steam, with bank profits, tourist numbers and property prices rising.

Dubai’s Islamic bonds are the world’s best-performing sovereign dollar sukuk this quarter as the economy of the Arabian Gulf business hub gathers steam, with bank profits, tourist numbers and property prices rising.

Seven of the top 10 best-performing government sukuk this quarter are from Dubai, according to data compiled by Bloomberg.

Dubai’s US$650 million of notes due May 2022 returned 5.3 per cent, the most among 33 Sharia-compliant sovereign bonds tracked by Bloomberg. The average return was 1.3 per cent.

Dubai is recovering from one of the world’s worst property crashes in 2008, when 65 per cent was wiped off prices. Home values rose 22 per cent in the second quarter from a year earlier, Knight Frank said in a survey, while Emirates NBD, Dubai’s biggest bank, posted a 50 per cent surge in profit.

Passenger traffic through Dubai International Airport jumped 17 per cent in the first half to 32.6 million.

“A lot of good news has been priced into Dubai as a result of recent developments,” said Mohieddine Kronfol, the chief investment officer for the Middle East and North Africa at Franklin Templeton Investments ME.

“And this is in a state that’s emerging as a safe haven in an erratic region.”

The yield gap between Dubai’s $600m sukuk due May 2017 and that of the US Treasury benchmark is at its narrowest since the Dubai notes were sold in May last year, tightening 95 basis points this quarter to 155 today. The yield on Dubai’s bond, which has the second-best returns this quarter, fell 92 basis points to 3.03 per cent.

“Sukuk investors still lack a wide array of alternative options, and Dubai’s recovery has been an amazing story,” said Gus Chehayeb, Dubai-based research director for the Middle East at Exotix. “The five-year credit default swap is trading at levels similar to those seen at the height of the boom.”

Dubai’s CDS, contracts insuring the emirate’s debt against default for five years, fell 86 basis points in the past 12 months to 199. They reached a five-year low of 187 on May 7.

Dubai’s economy is set to expand 4.6 per cent, on average, between 2012 and 2015, more than twice the growth of the previous four years, according to government forecasts.

“GCC credits in particular have been insulated from the emerging markets contagion and spread-widening,” Mr Kronfol said.

“On the strength of government finances and improvements in the United Arab Emirates, the effect has been positive for Dubai credit.”