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Dubai may launch dollar sukuk this year

One source at the arrangers of the roadshow — run by HSBC and Mitsubishi UFJ — declined to confirm whether Dubai might issue a bond later this year.

But a fund manager familiar with the presentations said they had pointed to a 7-10 year sukuk, and a senior fixed income trader said the issue could come in the third quarter.

“The arrangers said the reception was very good, they are talking about a 7-10 year sukuk,” said one European fund manager.

Dubai went on a non-deal roadshow, meeting non-Islamic investors in Switzerland, France, Germany and Britain between June 4-10, in a mixture of presentations and one-to-one meetings, investors said.

The presentations were designed to show Dubai’s general macro-economic outlook, without any specific deal plans, a source at one of the arrangers said.

“There was a very strong reception,” the source added. But pressed on whether a bond deal was in the works, the source declined to comment.

Dubai issued a five-year dollar and dirham two-tranche sukuk in Oct 2009, shortly before state-owned conglomerate Dubai World [DBWLD.UL] rocked markets with a standstill request on billions in debt payments.

The Islamic bond has been strengthening after Dubai World announced a well-received restructuring last month. Dubai’s $1.25 billion 5-year tranche was trading at 96 on Monday, giving a yield of 7.48 per cent.

A sukuk would likely be offered at more generous pricing than a conventional bond, providing a carrot for investors, fund managers said.

“I reckon there could be an issue sooner than later,” said one fixed income head familiar with Dubai’s presentation. “Third quarter now looks more of a possibility,” he said.

Dubai’s 2010 budget deficit was projected at Dh6 billion ($1.63 billion), the government said in January, but Dubai officials were indicating a slightly smaller deficit of $1-1.5 billion, the European fund manager said.

“Dubai could issue $1 billion at least,” he added. However, issuance may be delayed by Dubai’s need to get a credit rating, a prerequisite for many investors to buy international debt.

The United Arab Emirates has a rating of Aa2 from Moody’s but Dubai does not have its own rating.