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Dewa reopens debt market with $1bn bond

Dubai, April 16, 2010

Dubai Electricity and Water Authority (Dewa) has placed a $1 billion, five-year bond, the first bond from Dubai since its debt troubles emerged.   

The bond will pay a semi-annual coupon of 8.5 percent, Dewa said.

"It is important in terms of reopening the debt capital markets for Dubai," said Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi.   

Gulf firms have found it difficult to tap the debt market ever since state-owned conglomerate Dubai World announced in November that it needed to delay repayment on $26 billion in debt.

However, the government's restructuring plan for Dubai World last month has opened the door again for state-linked issuers.
   
"(Dewa's) success will provide a further catalyst for investor sentiment towards the Dubai credit story," Bhogaita added.   

Dewa said the investor book for the bond was well diversified, with 30 percent participation from both Europe and the United States, 25 percent from Asia and 15 percent from the Middle East.

"The roadshow was well received by investors who, on the back of recent positive market developments in the GCC (Gulf Cooperation Council), were keen to understand Dewa's underlying credit story," Dewa's treasury director Nasser Akil Abbas said in a statement.

Dewa saw strong investor interest for the dollar bond, allowing it to cut the yield to 8.5 percent, the bottom of the guidance range of 8.5-8.625 percent.

"The bond was issued at a premium of 595 basis points to US Treasuries, which is very generous," said a London-based banker. "The expectation from the market was that Dewa would have to pay a premium to get the deal done."    

The book for the benchmark bond stood at $11.5 billion, Dewa said. The utility is rated Ba2 by Moody's and BBB- by Fitch Ratings.   

"I do not think they (Dewa) would have been able to do anything like this three months ago," said Dmitry Sentchoukov, EM strategist at Commerzbank in London. "It shows the market believes that the problems of a few government-owned enterprises are localised and there will be a low chance of spillover," he said.   

State-owned Dewa had been looking since last year to tap the bond market to fund projects but held off as investors grew wary of Dubai's credit risk.

Gulf fixed-income markets were largely shut for months, but are now slowly coming back to life with a series of issues already priced or in the pipeline.

Strategists said increasing optimism over emerging markets helped Dewa to place its debt, while the launch showed the market was now open again for at least some issuers from Dubai.   

"Strong standalone names or banks perceived to be covered by the federal umbrella, such as Emirates Bank, will be able to tap markets, but it's unclear if they will be willing to pay up in order to issue," said Okan Akin, corporate debt strategist at RBS in London.  -Reuters   




Tags: Dewa | bond | Financing | Dubai utility |

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