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Emirates eyes bond as deal lifts market

Dubai’s $20 billion debt deal this week enhances prospects that Emirates, the world’s biggest airline by international passenger traffic, will sell its first Islamic bond in a year.

“Now is the best time for Emirates, Dubai and its government-related entities to issue sukuk or bonds,” Samer Mardini, a vice-president of fixed income at SJS Markets Ltd in Dubai, said by phone on Tuesday.

“Demand will be very strong, the cost of issuance will be very low and very competitive.”

The airline’s March 2023 sukuk sold a year ago is the second-best performing Shariah-compliant corporate security in 2014 in the six-nation Gulf Cooperation Council, returning 3.9 per cent. The debt was gaining amid an economic rebound even before Dubai struck a deal to roll over liabilities borrowed during the financial crisis.

Sukuk is a key option to finance new aircraft orders, the carrier’s president Tim Clark said in Boston last week.

Emirates, which announced the biggest commercial plane order in history during last year’s Dubai Airshow, needs to raise $4.5 billion in the financial year starting in April to pay for aircraft, it said in August. The carrier expects to fly 70 million passengers by 2020, up from 39.4 million in the fiscal year ended March 31, and announced it will open five new routes in 2014.

The average return from corporate sukuk in the GCC is 1.6 per cent this year, according to data compiled by Bloomberg. Saudi Electricity Co’s 2043 bond was the best performer, returning 4.2 per cent.

“It would be a good time to issue” for Dubai government-related entities, Richard Segal, head of international credit strategy at Jefferies International Ltd in London, said by e-mail on March 17. Still, Emirates has the option of borrowing through the aircraft leasing market to meet its “substantial” financing needs, he said.

A spokesman for Emirates declined to comment on the timing of any possible sukuk when contacted by phone on Tuesday.

The carrier is unrated.

Emirates is also seeking $2 billion of 12-year amortizing loans for which it will pay interest of less than 200 basis points, or two percentage points, above the London interbank offered rate, a person familiar with the matter said last week. Six-month Libor was 0.334 per cent on Tuesday. The $1 billion 2023 sukuk pays a profit rate of 3.875 per cent.

Emirates has opened routes to Kiev in Ukraine, Taipei in Taiwan, and Boston so far this year.

It will take delivery of nine Boeing’s 777-300ER planes and 10 Airbus Group NV A380 superjumbos during the 2014-2015 fiscal year, Brian Jeffery, former senior vice-president for corporate treasury, said in August.

The UAE central bank and Abu Dhabi stepped in to provide $20 billion of support to Dubai during the global financial crisis. They agreed to roll over the debt for five years at a fixed interest rate of one per cent, the state news agency reported on March 16.

The emirate’s successful refinancing “will give confidence to investors and encourage them to allocate part of their portfolio to Dubai and its related-entities,” Mardini said.