Dubai returns to debt market for civil aviation bond

Dubai Civil Aviation Authority may issue bonds to refinance $1 billion in debt maturing next month, two bankers familiar with the transaction said.

Dubai Civil Aviation hired UBS AG, Dubai Islamic Bank, Standard Chartered Plc and Bank of Tokyo-Mitsubishi UFJ Ltd. to manage the Islamic and conventional bond sale, according to the bankers who declined to be identified because details of the deal are private. The state-owned company raised $1 billion in 2004 through Dubai Global Sukuk FZCO. The Islamic bonds mature on November 4.

The new issue may signal the return of Dubai state-owned companies to the public debt market after the real-estate slump caused by the global credit crisis dried up funding. Dubai International Capital LLC, a private equity investor controlled by the emirate’s ruler, is seeking to raise $550 million through a syndicated loan to repay existing debt, a banker familiar with the transaction said last week.

“The market is getting more comfortable with Dubai credit,” said Dubai-based Jeffrey Meyers, head of fixed-income sales at Newedge Group. The news related to a “new fund injection from Abu Dhabi and officials’ comments about Dubai’s ability to pay its debt have helped a lot in improving confidence levels.”

Dubai’s ruler Sheikh Mohammed Bin Rashid Al Maktoum said last month he is “not worried” about the emirate’s ability to repay its debt this year. The emirate needs to repay $6.8 billion in debt during the fourth-quarter, including $3.52 billion by Nakheel PJSC, according to Deutsche Bank AG.

Rating firms earlier this year downgraded Dubai state-owned companies on concern the sheikhdom may not have sufficient funds to support its struggling entities after the credit crisis.

Dubai Civil Aviation’s floating-rate note was trading close to par value on October 16th, rebounding from 92.5 cents on a dollar on February 11. Dubai’s credit default swaps protecting five-year bonds from default have fallen 70 percent since reaching their highest in at least two years in February. A decline signals improved perception of credit quality. The swaps have dropped 2 percent this month.

Dubai borrowed $10 billion as part of a $20 billion bond program by selling debt to the United Arab Emirates’ central bank in February to help state-related companies raise cash amid the credit crunch.

Dubai, the second-biggest of seven sheikhdoms that make up the U.A.E., and its companies earlier borrowed more than $80 billion to transform the economy into a tourist and financial services hub.

The emirate may raise the second $10 billion tranche next month, Mohammed Alabbar, who heads the government committee evaluating the impact of the global credit crisis on Dubai, told CNN on October 9. (Bloomberg)

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