Rumours of a bond issue by Dubai are gathering pace as debt capital markets bankers covering the Middle East say a deal may be imminent.
The emirate was one of the first issuers from the Gulf in 2013 with a dual tranche 10-year sukuk and 30-year conventional note, and may be one of the early issuers this year as well, bankers told IFR.
“The noise around Dubai has been growing of late. There have been rumours ever since the World Expo announcement, but we’re hearing a lot more since the turn of the year,” one emerging markets syndicate banker said, referring to the announcement in late November that Dubai would host the world’s fair in 2020.
Rumours of a Dubai issue pre-date the World Expo announcement. One debt syndicate official at a local bank said as early as last summer that the emirate might consider refinancing some of its debt pile by returning to debt markets.
But the World Expo announcement certainly increases the case for a bond issuance. The event could lead to an influx of 25 million visitors to the emirate, driving new construction projects and significant infrastructure upgrades.
Last year, Dubai authorities estimated total financing costs at $8.4 billion (8.9 per cent of gross domestic product) and the government committed to fully funding capital needs of $6.8 billion, analysts at Bank of America Merrill Lynch said in a note in November 2013.
“I think you could see Dubai come very, very soon, because market conditions are excellent and they always strike when the iron is hot. You saw that last year, and I think you could see it this year as well,” a Dubai-based DCM banker said.
Issuance conditions are strong with emerging credit markets performing strongly in the first week of 2014.
Dubai’s curve is also doing well. Its long-dated 5.25 per cent 2043 note, issued a year ago, is up 1.5 points since the start of this year to 84.58, according to Tradeweb data.
However, Dubai and its state-linked companies still have to deal with a number of debt maturities in coming years, a legacy of the 2008 crisis and the subsequent property crash. The emirate will have to tread carefully not to add too much to the debt pile, said bankers.
“I think there will be some new issuance, but they probably won’t go crazy,” a second DCM banker based in Dubai said.
Among the debts of the Dubai government and related entities, Dubai has $20 billion coming due in November 2014 to Abu Dhabi and its banks.