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Dubai bond yields drop to record lows as debt schedule to be met

DIFC and Jebel Ali Free Zone table plans to help repay their Islamic bonds due this year

Gulf News

Dubai: Yields on Dubai government's dollar-denominated bonds dropped to record lows amid speculation state-owned companies will repay obligations this year.

The yield on the 7.75 per cent $750 million (Dh2.7 billion) notes due 2020 declined to 6.215 per cent in Dubai yesterday, the lowest level since they were sold in September 2010, according to prices compiled by Bloomberg.

The rate on the 5.591 per cent bonds maturing in 2021 dropped to 5.22 per cent. The cost of insuring the emirate's debt against default fell to the lowest since August yesterday.

DIFC Investments LLC, the owner of properties in Dubai's tax-free financial centre, plans to seek a loan of as much as $1 billion to help pay Islamic bonds due in June, two bankers with knowledge of the plan said on March 14.

Business park operator Jebel Ali Free Zone put forward a fundraising plan to help repay a Dh7.5 billion sukuk maturing in November, MEED reported on March 20.

Improved sentiment

"News reports about DIFC and JAFZ working toward refinancing their maturing sukuk this year have improved sentiment for Dubai's credit," said Nick Stadtmiller, head of fixed-income research at Emirates NBD.

"The general expectation was that these deals would get done, but actually seeing the results gives investors more confidence in Dubai's commitment to repaying its debts."

Credit default swaps on Dubai's sovereign debt dropped 57 basis points this month to 331 yesterday, according to data provider CMA, which is owned by CME Group Inc and compiles prices quoted by dealers in the privately negotiated market.

Dubai faces $10.3 billion of debt maturing this year excluding restructured loans, Bank of America Merrill Lynch said in October.

Investors have also responded favourably to statements regarding the emirate's debt restructuring. Dubai doesn't need to raise money from international bond markets this year and has "no intention" of seeking support from Abu Dhabi, Mohammad Al Shaibani, director-general of the Dubai Ruler's Court, said in an interview last month.

The government in December said it may look into refinancing part of its related-companies' financial obligations due this year.

"I would expect that when the final refinancing deals are announced for those two entities, market sentiment would improve further," Stadtmiller said.