Dubai Plans $5 Billion Bond

By | June 13, 2011

June 13–DUBAI (Source: Khaleej Times, Dubai By Issac John) - The Government of Dubai plans to raise up to $5 billion under a Euro Medium Term Note, or EMTN, programme in a move to bridge its budget deficit and fuel growth. Dubai will use proceeds from the bonds for infrastructure spending and budgetary purposes, the government said in a prospectus distributed by the Regulatory News Service on Sunday.On Sunday, the government announced a series of meetings with potential investors on a benchmark bond offering in London on June 13 and 14. The meetings, targeting fixed income investors, come ahead of the imminent launch of the bond, according to a statement distributed by the Dubai Government Media Office quoting the Department of Finance. The joint book-runners are Emirates NBD, HSBC, Royal Bank of Scotland and UBS.

With this new programme, Dubai is returning to the bond market for the first time in eight months. The move is in the wake of a hugely successful bond sale by Dubai’s Emirates airline to raise $1 billion on June 1.

Dubai, which is not rated, has hired Mitsubishi UFJ Securities, Standard Chartered Bank and UBS AG as arrangers and dealers for the new programme, said the prospectus.

On June 2, Dubai’s credit default swaps fell to the lowest level after they surged from 325 basis points on November 24, 2009, to 655 three days later as state-owned Dubai World announced plans to restructure about $25 billion of debt. The swaps climbed four basis points to 328 on June 10. Dubai, which is targeting to narrow budget gap to Dh3.8 billion in 2011, the lowest level since 2007, raised $1.25 billion in September in its first sovereign debt issue since the state-owned Dubai World sought a delay on debt payments. The bonds generated orders valued at about $5 billion. Dubai’s budget deficit more than halved to Dh6.02 billion or two per cent of gross domestic product last year from 2009, the prospectus showed. Its direct debt as of May 20 was Dh115.4 billion or 38 per cent of 2010 gross domestic product, according to the document.

Dubai’s economy expanded by 2.4 per cent last year, the prospectus showed citing preliminary data, higher than a previous 2.2 per cent estimate by the emirate’s statistics office. Dubai’s investment arm, the Investment Corporation of Dubai, or ICD, owns Dh23 billion in listed assets and Dh235.8 billion in unlisted companies, the prospectus showed. ICD agreed in May to a $2.8 billion, five-year loan refinancing with banks, which will be the largest loan to emerge from Dubai since its financial crisis.

According to the prospectus, Dubai cancelled 217 property projects as of May 31 after completing a review of the industry in the past two years. The Real Estate Regulatory Authority reviewed more than 450 projects and expects 237 of them to be completed “in due course,” according to the bond prospectus.

The total value of property sale transactions plunged to Dh119.5 billion at the end of last year from Dh152.9 billion a year earlier, it said.

Property prices in Dubai have dropped 64 percent from their peak in mid-2008, while rents have fallen 55 percent, according to Deutsche Bank. Asking prices dropped all over Dubai with the exception of apartments in Palm Jumeirah, Jumeirah Beach Residence and Sports City and villas in Emirates Living, Palm Jumeirah.

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Prices declined 1.2 per cent in May compared with the previous month and rents fell by one per cent, Deutsche Bank said. While villas declined one percent, apartment prices slid 1.3 per cent in May.

“Despite talks of renewed interest in real estate following regional unrest, there is no visible sign of an improvement,” Deutsche Bank analysts wrote. A recent report by Cluttons also observed that residential property prices in Dubai were continuing to slide.

Analysts at Jones Lang Lasalle also believe that oversupply would continue to impact residential, office, and retail space markets in Dubai in 2011. In 2011, an addition of a 25,000 new units would boost Dubai’s total residential stock to around 335,000. In 2010 36,000 housing units were completed in Dubai, they said

Source: Khaleej Times, Dubai By Issac John

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A service of YellowBrix, Inc. Publication date: 2011-06-13

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