Dubai DIP sukuk success may trigger more issues
London, February 14, 2014
By Abhinav Ramnarayan
A well-timed launch saw Dubai Investments Park achieve favourable terms on its debut $300 million, 4.296 percent five-year Reg S sukuk issue, a deal that may serve to accelerate the plans of other regional potential issuers.
The real estate firm, rated BB by Standard & Poor's, kicked off the deal in a strong week for emerging markets and to a market starved of Middle East paper: it is the first sukuk from the region and the second international bond from the Gulf this year after Kuwait Projects Co.
As a result DIP, a unit of Dubai Investments, recorded a final order book on Thursday of around $4 billion, unusually large for a debut sukuk.
Lead arrangers Al Hilal Bank, Citigroup, Dubai Islamic Bank and Emirates NBD took full advantage of the demand, and the pricing of 265 basis points over mid-swaps came 35 bps inside guidance of MS+300 bps, and even further inside initial profit thoughts of the low 300s over mid-swaps.
"Even when we brought in pricing, hardly any orders fell out of the book, such was the appetite for this deal," a lead banker said.
At the time initial profit thoughts went out, bankers away from the deal were talking about a pick-up of 70-80 bps over larger and better-rated peer Jebel Ali Free Zone (Baa3/BBB-).
But final pricing was just 38.5 bps wide of Jafza's 7 percent 2019 sukuk, spotted at 226.5 bps over mid-swaps around the time DIP opened books.
Apart from the rarity value, the deal comes at a time when sentiment towards Dubai is extremely strong.
"This sukuk is secured by assets on the ground in Dubai, and perception towards Dubai is very strong at the moment," said Mohammad Kamran Wajid, chief executive of Emirates NBD Capital, the investment banking arm of Emirates NBD.
Last week Dubai's largest real estate developer, state-linked Emaar Properties, regained an investment-grade credit rating after losing it during Dubai's financial crisis five years ago. In the absence of a rating for the Dubai sovereign, Emaar is seen as one indicator for confidence in the emirate.
"Also, DIP operates a major land bank in the general area where the Expo is to be held," Wajid noted. Dubai will host the world's fair in 2020 and plans billions of dollars of spending on infrastructure in the area.
DIP's main asset, a mixed industrial, commercial and residential block, is adjacent to the World Expo 2020 site, according to the deal documentation.
Overall conditions helped as well. Institutional investors in Europe are looking to put money to work, as evidenced by successful recent deals by Turkey and Slovenia. In addition, there is a lot of liquidity in the Islamic investor community, said Wajid.
European investors took 49 percent of DIP's issue, followed by Middle East accounts with 32 percent. By investor type, fund managers dominated with 65 percent of the deal.
Gulf corporates rarely offer much spread either, which made this an attractive deal, a rival banker said.
Other potential issuers would be encouraged by the transaction and more deals could follow soon, particularly from the UAE, bankers on and away from this deal said.
"There are other issuers waiting to hit the market and we could see a flurry of deals between now and the summer," said Wajid.
Abu Dhabi National Energy Co, with a $1 billion bond due in September, has sent out an invitation to banks to pitch for a role on a 2014 debt issue. Other Abu Dhabi GREs with obligations maturing this year include Mubadala Development Co , which has $1.25 billion due in May, and Tourism Development and Investment Co, which has $1 billion maturing in October.
In Dubai, perhaps the most high-profile maiden issue expected in 2014 is Etisalat, which is said to be targeting the bond market to refinance a bridging arrangement for its purchase of a majority stake in Maroc Telecom. - Reuters