Dubai: Emirates may pay less than other Arabian Gulf corporate issuers to sell Islamic bonds after global borrowing costs declined and as the world's biggest international carrier benefits from passenger growth.
The airline, which is considering refinancing $550 million (Dh2 billion) of sukuk maturing in June, may pay 339 basis points over similar maturity midswap rates, or about 4.55 per cent, according to the average estimate of four analysts.
The forecast is below the 4.62 per cent average yield on the eight corporate Gulf Islamic bonds included in the HSBC/Nasdaq Dubai GCC Corporate US Dollar Sukuk Index.
Emirates, which flies to 123 destinations, is benefiting from a 19 per cent passenger increase through Dubai's airport in February. That follows a record 51 million travellers in 2011. Sales of Islamic debt in the Arabian Gulf surged to $8.3 billion in 2012 from $1.53 billion in the year-earlier period as average corporate yields tumbled to a record low, data compiled by Bloomberg and HSBC/Nasdaq show.
"Markets have tightened markedly in the past few months and Emirates airline has only continued to strengthen its financial base," Thomas Christie, a fixed-income sales trader at Rasmala Investment Bank in Dubai, said last week. It will be cheaper for Emirates to raise funds than when it sold $1 billion of non-Sharia-compliant bonds in June, he said.
The 5.125 per cent dollar notes maturing in June 2016 were priced to yield 330 basis points over the five-year midswap rate, a benchmark used to price many types of bonds. The midswap rate tumbled 67 basis points since June 1 to 1.16 per cent yesterday. It reached 0.9660 per cent on February 2, the lowest level since November 1988 when Bloomberg started tracking the data.
The yield on Emirates' bond dropped 80 basis points this year to 4.37 per cent yesterday, while the price on Emirates' floating-rate Islamic bonds rose 0.8 per cent to 99.26 cents on the dollar.
Emirates will study "the economics" of both bonds and sukuk as refinancing options, Gary Chapman, president of the airline's travel service unit Dnata, said last week. The "market is awash with funds" at "relatively attractive pricing" and the company will decide after announcing financial results early to mid-May, he said.
The airline is benefiting from a pick-up in tourism to Dubai, which received 9.3 million tourists last year, up ten per cent from 2010, the Department of Tourism and Commerce Marketing said on March 7. Hotel revenue jumped 20 per cent.