Dubai Sukuk paves the way for more issuances (By IFN)

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UAE: The Sukuk market, already at a high thanks to the record level of issuances sold in the year-to-date, is set to peak further this year as the Dubai government’s recent US$1.25 billion dual-tranche Sukuk offering is expected to pave the way for further sales from the UAE.

Dubai’s offering, seen as a landmark deal due to its speed-to-market despite the emirate’s near-default in 2009, emerged amid borrowing costs reaching record lows. The yield on the emirate’s previous five-year Sukuk issuance, sold in October 2009 and priced at 6.4%, has fallen to 4.13% in April; while the yield on Dubai Sukuk has also fallen to a record low of 4.08% in the same month.
Samer Mardini, the vice-president of fixed income and Islamic finance products at SJS Markets, is quoted as saying that the emirate paid “the cheapest price” for its latest Sukuk, reflecting the return of local and international investors to Dubai. “The sale will encourage other Dubai government-related entities to tap the bond market and there would be appetite for another Dubai sale,” he said.

The sale saw Dubai price a US$600 million, five-year tranche at 4.9% and a US$650 million, 10-year tranche at 6.45%; receiving bids worth more than US$4.5 billion, compared with the US$1.8 billion-worth of bids it received the last time it tapped the debt market, in a 10-year, US$500 million conventional bond sale last year.

The strong demand for the emirate’s latest offering is seen in part due to the government’s success in managing existing debt, with an estimated US$15 billion-worth due this year.
“With oil above US$100 a barrel, Dubai’s credit default swaps under the 400 mark and the success of the new issuance, I wouldn’t be surprised if this paves way for more issuances,” said Hussain Al Banna, the head of fixed income trading at Bahrain Islamic Bank.