x Abu Dhabi, UAESaturday 22 July 2017

Debt to be cheap for Dewa when $1bn sukuk comes to market

Dubai Electricity and Water Authority will probably pay almost 50 per cent less to sell debt than it did almost three years ago after borrowing costs plunged four times more than global peers.

Dubai Electricity and Water Authority (Dewa) will probably pay almost 50 per cent less to sell debt than it did almost three years ago after borrowing costs plunged four times more than global peers amid a pick up in power demand.

The state-owned company hired six banks to raise as much as US$1 billion from the sale of Islamic bonds, a banker familiar with the deal said January 31. Dewa, which has investment-grade ratings at Moody's Investors Service and Standard & Poor's, will probably pay about 4 per cent on 10-year bonds, according to Commerzbank and Mashreq Capital DIFC, which are not involved in the sale. It sold similar-maturity notes in October 2010 at 7.375 per cent.

Dewa is coming to market after the Dubai government, which is unrated, sold 10-year sukuk last month at a 40 per cent discount to its previous sale. An economic recovery in the city is spurring demand for power and water that helped boost Dewa's revenue by 7 per cent in 2012.

The utility "is one of best credits and most systemically important ones out of Dubai," Sergey Dergachev, a portfolio manager at Union Investment Privatfonds in Frankfurt, said. Mr Dergachev said he will "most likely" invest in the issue as "it is the best proxy for quasi-Dubai risk."

The yield on Dewa's 2020 non-Islamic securities plunged 296 basis points, or 2.96 percentage points, in 2012, according to data compiled by Bloomberg. The average yield on the Bank of America Merrill Lynch Global Utility Index fell 72 basis points to 2.73 per cent in the same period.

Sales of Islamic bonds in the six-nation Gulf Cooperation Council are likely to surge 64 per cent this year to as much as $35bn as issuers tap lower borrowing costs, HSBC said on February 7. The average yield on GCC corporate sukuk dropped 208 basis points over the past year to 3.55 per cent yesterday, according to the HSBC/Nasdaq Dubai GCC Corporate US Dollar Sukuk Index.

Dubai sold $750 million of 10-year sukuk at 3.875 per cent last month and received bids of about $9bn. The sale paved the way for other state-linked companies to tap the market, including Emirates Airline, which raised $750m of 12-year bonds last month that priced to yield 4.5 per cent.

 

* Bloomberg News