Dubai, Qatar's QIB revive Gulf debt sales

The Dubai government and Qatar Islamic Bank are among issuers leading the biggest Arabian Gulf borrowing push since the fourth quarter, a sign Dubai World’s debt restructuring is reviving confidence in the region.

Dubai may sell $1 billion next week in its first bond sale in a year, two bankers familiar with the plan said Sept. 23. Qatar Islamic Bank plans to offer its first dollar sukuk and will start meeting investors in the Middle East, Asia and Europe, it said last week. Chief Executive Officer Salah Mohammed Jaidah said May 19 the bank may issue as much as $750 million of notes that comply with the religion’s ban on interest.

The sales would push Gulf issuance to more than $9 billion in the third quarter, the most since the $16 billion raised in the final three months of 2009, according to data compiled by Bloomberg. The extra yield investors demand to hold Dubai’s sovereign dollar sukuk rather than Malaysia’s has narrowed 46 basis points to 371 this quarter as the region recovered from the worst financial crisis since the 1930s.

“There has been substantial global appetite for high-yield bonds, which will help local issuers especially after the Dubai World deal,” Usman Ahmed, a senior fund manager in Dubai at Emirates NBD Asset Management, which oversees $300 million in bonds at the unit of the United Arab Emirates’ biggest lender, said in a telephone interview on Sunday. “Issuers waiting on the sidelines will benefit from reduced risk premiums when they come to market”.

The average yield on sukuk sold by Gulf Cooperation Council issuers dropped 125 basis points, or 1.25 percentage point, this quarter to 6.23 percent on Sept. 24, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index.

The yield on Dubai’s 6.396 percent sukuk maturing in November 2014 rose nine basis points to 6.462 percent on Sept. 24, paring its decline this quarter to 119, according to data compiled by Bloomberg. Dubai World, one of the emirate’s three main state-controlled holding companies, reached an agreement this month with 99 percent of its creditors to change terms on $24.9 billion of debt.

Gulf sukuk have returned 4.86 percent this quarter, the best such period since the first quarter, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. Debt in developing markets gained 7.2 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Malaysia’s 3.928 percent sukuk due June 2015 yielded 2.74 percent, down 78 basis points this quarter, according to prices from the Royal Bank of Scotland Group Plc. The spread between the average yield for global sukuk and the London interbank offered rate shrank 66 basis points to 377 this quarter, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.

Qatar Islamic’s sale will be the first global sukuk issuance by a Gulf borrower since February when Saudi Arabia- based Dar Al Arkan Real Estate Development Co. sold $450 million of Islamic debt. Kuwait’s Burgan Bank SAK, a lender part-owned by Kuwait Projects Co., sold 10-year notes last week, raising $400 million.

Dubai’s government hired HSBC Holdings Plc, Deutsche Bank AG and Standard Chartered Plc to manage the sale of five- to seven-year bond, the two bankers said last week, declining to be identified because the plan is yet to be made public.

Officials from the Dubai government and Qatar Islamic Bank declined to comment when Bloomberg News contacted them by telephone on Monday, citing government policy.

Knight Libertas Ltd., a London-based firm that specializes in high-yield bonds, said in a note Sept. 24 Dubai’s debt restructuring will reduce the risk of default by other state- owned Islamic and conventional borrowers.

Governments in the Gulf haven’t borrowed through global sukuk sales since the Dubai Department of Finance issued a $1.25 billion Islamic bond in October. Islamic Issuance from the six- member Gulf Cooperation Council, which includes the United Arab Emirates, Qatar and Saudi Arabia, has declined 24 percent this year to $2.5 billion.

Economic growth in the Middle East will accelerate to 4.5 percent this year, from 2.4 percent in 2009, the International Monetary Fund said in July.

Dubai Islamic Bank PJSC, the biggest Shariah-compliant lender in the U.A.E., said on Sunday it will become the largest shareholder in mortgage lender Tamweel PJSC as the emirate seeks to restart mortgage lending after property prices slumped. The yield on Tamweel’s 4.31 percent sukuk due in 2013 dropped 94 basis points this month to 18.527 on Sept. 24, Bloomberg data show.

Qatar Islamic’s five-year sukuk is likely to yield between 3.75 percent to 4 percent, while Dubai may have to offer a yield of up to 7 percent if the government issues a seven-year bond, Abdul Kadir Hussain, chief executive officer in Dubai at Mashreq Capital DIFC Ltd. said in an interview on Sunday.

“Qatar Islamic Bank will have a scarcity value to it,” Hussain said. “Emerging market funds are cash rich and new deals have generally been successful.” (Bloomberg)