New DPWDU’23 Appears Pricey Relative to EMAAR’24

16 June 2016

Credit and Relative Value Ideas

New DPWDU’23 Appears Pricey Relative to EMAAR’24

Highlights/Updates:

DWPDU’23 was issued on 29 May 2016 and was 2x oversubscribed. Bids came from 25 countries across the Middle East, America, Europe and Asia. The new issuance was priced at MS+237.5bps or 3.908%, inside the IPT MS+262.5/275 area. This issue follows the successful buyback of over USD1.1bn of the existing USD1.5bn DPWDU’17 sukuk. The remaining USD309m will mature in 2017. Funds raised from DPWDU’23 will be used to fund the buyback along with the company’s ongoing global expansion.

Sukuk Details:

Sukuk	DPWDU 3.908% 5/23 (YTM: 3.921%; T+261.1bps; Z+275.5bps)
Amount Outstanding	USD1,200m Sukuk al-Wakala
ISIN	XS1419869968
Ratings	Baa3/Sta; NR; BBB-/Sta
Key Terms	·       Negative pledge ·       Change of control put option

Relative Value Commentary

DPWDU’23 looks rich relative to EMAAR’24 (YTM: 4.004%; T+266.4bps; Z+273.8bps) and MAFUAE’25 (YTM: 4.087%; T+275.9bps; Z+274.0bps). In fact, EMAAR’24 looks attractive among the three sukuk names, given its yield pick-up of 8.3bps relative to DPWDU’23. Even though DPWDU’23 was announced on 24 May 2016, its yields have widened since its issuance while the yields of EMAAR’24 and MAFUAE’25 have tightened c.75bps on average year-to-date. In addition to this, DP World’s outlook was upgraded to positive by Fitch in Nov-15 on improving cash flows in 1H15 (full year results not released yet), strong liquidity and expected deleveraging from 2016 onwards assuming continued bolt-on acquisitions.