x Abu Dhabi, UAEMonday 22 January 2018

Bond sale to help Dubai bank benefit from economic upturn

Commercial Bank of Dubai prepares to test the waters of bond markets with credit markets still receptive to UAE credit.

Commercial Bank of Dubai is preparing for its first ever bond issuance, as the UAE resumes such sales after corporate earnings season.

The Dubai-based lender hired Citigroup, HSBC and National Bank of Abu Dhabi to conduct roadshows in Asia, the Middle East and Europe beginning on Thursday

A US dollar-denominated benchmark bond may follow "subject to market conditions", the bank said in a statement to the Dubai Financial Market. Benchmark bonds are typically about US$500m in size.

"The programme will help the bank to capitalise its future business opportunities and will enable CBD to benefit from an improving economic cycle in the UAE," said Peter Baltussen, the bank's chief executive.

Global investors have proven receptive recently to debt sales from the UAE, and Dubai in particular, as they hunt the world for sources of high-yielding assets.

However, returns have been relatively paltry compared with equities.

The HSBC/Nasdaq Dubai UAE Conventional US dollar bond index has produced total returns of just 1.6 per cent so far this year.

That compares with substantial gains for both of the UAE's stock market benchmarks, with gains of 32.4 per cent on the DFM General Index during the same period making it the second-best performing index worldwide.

In the meantime, many of the emirate's debt headaches of the past few years have ceded from view. Dubai's Government said on Sunday it had repaid a Dh3.3 billion bond upon maturity. "Dubai has shown its ability to grow again, with a respectable 4 per cent pace easing deleveraging, and a perception that the real estate market has bottomed," analysts from Merrill Lynch wrote in a research report.

While it was uncertain how some large restructured maturities due in 2015 will be handled, including by Dubai World and Nakheel, the report added that there was enough time for now for those issues not to trouble investors.

Total bond sales so far this year have reached $17.6bn in the Arabian Gulf, following a record year for issuance in 2012.

In the wake of a 25 basis points rate cut from the European Central Bank last week, demand for Middle Eastern credit was likely to continue in the short term, analysts from InvestAD wrote in a research note.

"The mood in Middle East credit markets has become very positive, with rhetoric from US and European regulators signalling lower benchmark interest rates for the near future," the report said.

"We expect primary and secondary markets to remain very active in the coming days."