Dubai - Arabstoday
The Dubai government launched a $1.25 billion two-tranche Islamic bond on Wednesday, issue arrangers said, at the lower end of earlier indicated yield guidance, signalling healthy appetite for the Emirate’s latest debt market foray.
Mohammed Al Shaibani, Director General of the Dubai ruler’s court said that Dubai will not use Islamic bond sale proceeds to refinance Jebel Ali Free Zone and DIFC debt.
The bond proceeds will be used for “something to do with the government and nothing to do with any of the entities,” Shaibani said, declining to be more specific.
“DIFC and Jafza are separate entities and they will handle that.”
DIFC Investments, a unit of Dubai’s tax-free business financial centre, has $1.25 billion in sukuk maturing in June, while Jebel Ali Free Zone faces the maturity of Dhs7.5 billion ($2 billion) in Shariah-compliant notes in November.
Shaibani said the new rules won’t affect refinancing efforts of Dubai companies. “It shouldn’t have an impact at all on Dubai refinancing,” he said. “They regularly do what they think is right and fair and we should support them, but it shouldn’t have any effect.”
Dubai launched a $600 million 5-year tranche at 4.9 per cent and a $650 million 10-year tranche at 6.45 per cent. Final guidance issued earlier on Wednesday had been tighter than initial indications from the previous day.
Three sources said order books were almost $4 billion when books closed at about 0830 GMT. Order books for the emirate’s foray into capital markets -a $500 million 10-year issue last June - were below $2 billion.
The new bonds were already trading higher, an indication of demand for the deal. The five-year tranche was trading 0.25/0.50 higher while the 10-year part was up 0.20/0.45 per cent, according to two regional traders.
“The continued pickup in Dubai’s economy, led by the external sectors, should support demand for the issue along with the strong demand for Islamic bonds,” said Monica Malik, chief economist at EFG Hermes.
Dubai’s budget deficit narrowed sharply to Dhs3.7 billion ($1 billion) last year, a sovereign bond prospectus produced by the Emirate showed.
Proceeds of the issue will be used to cover the budget deficit, a senior government official, requesting anonymity, said earlier.
The government has direct public notes’ maturities of Dhs6.5 billion in 2013, according to the latest bond prospectus, and just over Dhs7 billion in 2014. In addition, related party debt, consisting of a $20 billion facility borrowed from Abu Dhabi in 2009 also matures in 2014.