Dubai Utility DEWA Launches $1bn Sukuk

Dubai Electricity and Water Authority (DEWA) returned to global debt markets after an absence of more than two years on Thursday with a $1 billion Islamic bond, or sukuk, which drew very strong demand.

The fully government-owned monopoly printed the five-year paper at par at a profit rate of three per cent, a statement from lead arrangers said.

The final profit rate was at the tighter end of guidance released earlier in the day, indicating healthy investor appetite.

Order books were reportedly over $5.5 billion before they closed in the Middle East, and traders indicated the deal was already bid higher in the grey market ahead of pricing.

The rarity of a regional utility issuing bonds combined with DEWA’s investment grade rating of BBB and returning confidence in Dubai, which has helped bring down yields on existing debt, were all factors boosting demand for the deal.

DEWA last tapped global debt markets in October 2010, when it priced a $2 billion, dual-tranche conventional bond. The $500 million 6.375 per cent portion of the deal maturing 2016 was bid at 2.7 per cent on Thursday afternoon.

Its 2020 maturity, a $1.5 billion bond with a coupon of 7.375 per cent, has seen yields tumble in the last few days to about 3.8 per cent from four per cent as investors eye bigger returns.

Traders indicated the new 2018 paper was aggressively priced, which could affect secondary performance.

“It (pricing) seems slightly tighter than the existing curve and there is not much left on the table for investors,” said a regional investor, adding the paper could come under selling pressure post-issue.

“DEWA went for a small size to limit the impact of U.S. Treasury rates. It is the uncertainty on long term rates that has kept the markets edgy in the past few weeks so the borrower chose to limit the rates risk,” the investor added.

In comparison, Dubai government’s $600 million sukuk maturing 2017 was offering a yield of about 2.9 per cent, indicating DEWA was paying only about 10 bps premium for an extended 10 month maturity.

Standard Chartered, Citigroup, RBS and local lenders Emirates NBD, Dubai Islamic Bank and Abu Dhabi Islamic Bank were bookrunners on the deal.