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Wed 21 May 2008 04:03 PM

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Dewa returns to market with benchmark sukuk

State utility to price five-year sale of floating rate Islamic bonds in dirhams, bank says.

Dubai Electricity & Water Authority (Dewa), which postponed an Islamic bond sale last year, is returning to market with a dirham-denominated benchmark sukuk, one of the banks arranging the issue said on Wednesday.

State-owned Dewa had planned to sell as much as $2.5 billion of bonds in November, but delayed the issue after a global credit crunch pushed borrowing costs higher, and because of a regional lack of investor appetite for dollar securities.

The utility's latest sale is priced in dirhams, highlighting investor appetite for securities denominated in dollar-pegged Gulf Arab currencies, on speculation countries in the region may revalue to stave off rising inflation.

Dewa is aiming to invest more than $19 billion to increase electricity capacity by 150% by 2012 from 5,000 megawatts and 255 million gallons per day of water, a prospectus given to investors last year showed.

The five-year sale of the floating rate Islamic bonds, or sukuk, will be managed by Barclays Capital, Citigroup, Dubai Islamic Bank and Emirates Bank International.

Last year's defaults on US home loans and the ensuing credit squeeze prompted many Gulf borrowers to shelve bond sales as banks became more reluctant to lend.

But activity is on the rise again, and several firms and Gulf states have closed or announced bond sales in recent weeks.

In November, Dewa had priced its three-year dollar-denominated sukuk at 100 basis points, or one percentage point, over the three-month London Interbank Offered Rate (Libor), before it pulled the sale from the market.

Dewa instead returned to the debt market in March and closed a $2 billion one-year Islamic loan.

The utility is rated AA- by Fitch Ratings and A1 by Moody's Investors Service. (Reuters)

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