x Abu Dhabi, UAESaturday 20 January 2018

Dubai shares surge as investors signal approval to bond sale plan

Dubai's market climbed to a more than three-week high as investors responded positively to the emirate's bid to sell hundreds of millions of dollars of bonds.

The Dubai Financial Market yesterday rallied 2.2 per cent. AFP
The Dubai Financial Market yesterday rallied 2.2 per cent. AFP

Dubai shares surged more than 2 per cent to stage their biggest one-day gain in almost a month as investors were cheered by the emirate's bid to sell hundreds of millions of dollars of bonds.

Dubai's latest bond sale, its first in nine months, aims to tap a growing global appetite for debt.

The Dubai Financial Market yesterday rallied 2.2 per cent, shrugging off a major stock market retreat in Europe as concerns over the continuing Greek debt crisis shook investor confidence. The Abu Dhabi Securities Exchange climbed 1.2 per cent.

"There is enormous appetite for risk among international bond investors and it's not surprising that a well-priced sovereign issue is well received," said Paul Reynolds, who heads Rothschild's Middle East advisory operation.

"What was missing was evidence that Dubai could finance itself and [the issue] has removed that concern."

Dubai yesterday raised US$500 million (Dh1.83 billion) from the sale of dollar bonds, Bloomberg News reported, citing two bankers familiar with the transaction.The 10-year bonds, with a five-year put option, will be priced to yield 375 basis points above the five-year benchmark mid-swap rate, bankers said.

UAE bond markets, dominated by long-term institutional investors, have rallied in the past few months as increasing transparency over Dubai's debt repayment programme earns approval.

However equities, which are largely retail-driven and contribute towards 85 per cent of trading volumes on local markets, have been largely stagnant since staging a rally from a seven-year low in February, at the height of unrest across some parts of the region.

Market commentators said gains this week could point to a revival in local stocks as clarity over Dubai's debt-repayment programme underpinned investor confidence.

"I definitely think there is now clarity and transparency [that] is very key for investors," said Ghassan Chehayeb, an associate director at Exotix, a Dubai bank that specialises in distressed debt and structured finance.

"The equity market is finally catching up with the bond market after being in standstill mode," Mr Chehayeb said.

Investor confidence dropped after the state-controlled holding company Dubai Worldannounced in November 2009 it was seeking a debt standstill.

Analysts also pointed to increasing positive sentiment over the imminent decision by the index compiler MSCI on whether it will upgrade the UAE and Qatar stock markets from "frontier" to "emerging" status. Optimism that the decision will go in favour of the two states is prompting investors to jump into the market, they said.

Fathi ben Grira, the chief executive of Mena Corp brokerage, said he had started recruiting in anticipation of a possible upgrading.

MSCI, which is scheduled to make its announcement on Tuesday, currently classifies six of the seven Gulf markets as frontier, but Saudi Arabia is not categorised.