Dubai: Dubai is expected to revive bond sales after the plans for Dubai World's debt restructuring were announced on Thursday.
Credit default swaps linked to Dubai plunged after the government said it will inject as much as $9.5 billion into Dubai World, which is seeking to reschedule $23.5 billion of debt. Bonds sold by Nakheel jumped 45 per cent as its parent said it will pay creditors in full should banks accept the debt proposal.
Borrowers from Emirates NBD to Dubai Electricity and Water Authority (Dewa) say they may sell debt once the deal is complete. Overseas offerings in the rest of the region are off to the best first quarter since 2007, with more than $3 billion raised from companies such as Banque Saudi Fransi and National Bank of Abu Dhabi, data compiled by Bloomberg show.
The support to Dubai World has "provided a very positive catalyst for Gulf credit", said Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi.
"In the secondary markets, we have seen a strong rally in Dubai credits, and on the primary side I would expect to have positive implications for the ability of Dubai-based issuers to access the debt capital markets."
Reaction
Dubai credit default swaps fell 53.8 basis points to 368.9 basis points during trade in London on Thursday and closed at 402.9, according to CMA DataVision prices.
The contracts, which pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent, traded at 405.7 basis points early yesterday. A basis point equals $1,000 a year on a contract protecting $10 million of debt.
Investors should sell credit default swaps linked to Dubai's government because the restructuring of Dubai World's debt poses "no sovereign risk", JPMorgan Chase's Brahim Razgallah wrote in a research report yesterday.
Nakheel's $750 million Islamic bond, or sukuk, maturing in January rose 29.5 cents to 94.375 cents on the dollar on Thursday, according to prices on Bloomberg.
The developer of the palm islands off Dubai's coast has two bond issues worth $1.73 billion outstanding.
Dewa may raise $1 billion to $1.5 billion in the second quarter by selling bonds, CEO Saeed Mohammad Al Tayer said earlier this month. The Dubai government's $1.93 billion Islamic bond issued in October was the last sale of bonds from the emirate.
Emirates NBD, the biggest bank in Dubai, plans to tap the debt market after the restructuring is complete, chairman Ahmad Bin Humaid Al Tayer said.
"Let's watch the market, we are not in a hurry," Emirates NBD's Al Tayer said in a phone interview on Thursday.
"There is a clearer picture of the future, it gives more confidence to the UAE and the banking sector."
Funding
The additional restructuring funds double to $20 billion the amount the government provided to Dubai World, which will ask creditors to wait up to eight years to get all their money back.
The company said in November it would seek to delay repaying debt until May, sparking a plunge in developing-nation stocks and doubling the cost to protect against a default by Dubai.
Debt sales from the Gulf this quarter were led by Saudi Arabia-based Banque Saudi Fransi and the state-owned National Bank of Abu Dhabi.
National Bank sold $750 million of 4.25 per cent notes due in 2015 last week to yield 1.78 percentage points more than the benchmark swap rate.
That's 12 basis points less than the 1.90 percentage points over swaps it paid when it issued $850 million of five-year notes in September. Investors demanded more than five times the amount sold, said Bhogaita. A basis point is 0.01 percentage point.
"What we can assume is that the next leg of issuance will be from strong corporate names and banks from the region," said Nish Popat, head of fixed-income at ING Investment Management Dubai.
