By Staff writer
Gulf emirate cuts size of issue in return for better price, says lead arrangers
The government of Dubai launched a $500m 10-year bond on Wednesday at the lower end of earlier guidance, lead arrangers said, with the emirate preferring to issue a smaller size in return for a better price.
The bond was priced at 5.591 percent, said IFR, citing leads.
The bond launched at 375 basis points over five-year midswaps. Guidance for the bond had been between 375 basis points and 385 basis points over five-year midswaps.
"It is a small bond issue. On the other hand, this also could be good for pricing," said Michael Ganske, head of emerging market research at Commerzbank in London. "$500m is not a lot."
Spreads have narrowed to attractive levels in the last few months, in part due to Dubai's perceived safe-haven status and relative political stability. Regional banks and other state-linked firms are also tapping the market, thanks to global demand and attractive pricing.
"I think it is a fair price. Without a proper environment, which is very supportive for bond issuance from the emerging markets, clearly they would probably not be able to come back."
Dubai's latest bond includes a put option after five years, allowing investors to redeem their investment ahead of maturity at full value. The structure is not commonly used for issues from the region.
"One of the factors that may affect demand for this deal is that the 10 year maturity with 5-year put is a new structure for investors in this region," said Chavan Bhogaita, head of markets strategy department at National Bank of Abu Dhabi.
"International investors are more likely to be comfortable with this structure, however this group of investors are likely to demand a higher spread from the issuer."
Dubai last came to the bond market in September 2010 when it issued a dual-tranche $1.25bn bond. That issue was four times oversubscribed and reflected increased global investor demand for higher yields.
Dubai carrier Emirates raised $1bn in a five-year issue earlier this month, yielding 5.125 percent, which attracted orders of over $5bn.
"The turmoils ... in Dubai seem for the moment have passed and people are re-evaluating Dubai risk, and the successful launch of these two [bonds] shows that at the right price investors are looking at Dubai names again," said Nish Popat, senior investment manager at ING Investment Management.
He added the pipeline for regional issues in the next couple of months remains strong.