Dubai's DEWA said to pick banks for sukuk

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Saeed Mohammed Al Tayer, managing director and CEO of DEWA.

Saeed Mohammed Al Tayer, managing director and CEO of DEWA.

Dubai Electricity and Water Authority (DEWA) has picked banks to arrange a benchmark-sized Islamic bond, or sukuk, two banking sources have told Reuters.

The state-owned utility has picked Standard Chartered, Citigroup, RBS and local lenders Emirates NBD, Dubai Islamic Bank and Abu Dhabi Islamic Bank, the sources said.

Benchmark bonds are typically at least $500m in size.

The sources declined to be identified as details of the mandate are not yet public. A DEWA official declined to comment.

DEWA, one of the strongest credits in the emirate, plans to issue up to $1bn of sukuk in the first quarter and use the proceeds to refinance existing debt and invest in its projects, Chief Executive Saeed Mohammed al-Tayer said earlier in January.

The potential sale will follow a successful $1.25bn sovereign bond offering by Dubai government last week which took advantage of a gradual recovery in the economy and increased investor appetite for emerging market debt.

"Dubai has set the benchmark and now you are seeing state-linked entities following the path. They want to raise as much money as possible when spreads have tightened and sentiment is at its best in years," one of the sources said.

A sale is not imminent and may be launched in the next couple of weeks, a second banking source said.

DEWA last tapped global debt markets in October 2010, when it priced a $2bn, dual-tranche conventional bond. The improvement in Dubai's image among investors since then may help it win better pricing relative to the rest of the market.

The sukuk may price inside the sovereign given investor demand for Islamic debt and a desire to diversify portfolios, analysts and industry experts said.

Yields on DEWA's outstanding bonds have been declining for over a year, helping reduce borrowing costs, thanks to a general rally in Dubai bonds and upgrades by rating agencies.

The utility's $500m 6.375 percent 2016 maturity was bid at a yield of 2.87 percent on Thursday, according to Thomson Reuters data. The bond has come under pressure in recent days, with yields 44 basis points higher since January 10.

However, yields are more than 250 bps tighter since the same time a year ago.

In November, Standard & Poor's raised its long-term rating of DEWA to BBB from BBB-, citing an improved financial performance and its plan to refinance upcoming maturities.

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