Dubai Said to Cut Price on $800 Million Funding Plan on Demand

Dubai’s government has reduced the price it plans to pay on an $800 million fund-raising program backed by road-toll receipts because of strong demand from investors, said a banker familiar with the transaction.

The yield on the securities has been cut to 325 basis points, or 3.25 percentage points, over the London interbank offered rate from 350 basis points, the banker said, declining to be identified before the announcement is made public. A basis point is 0.01 percent.

Four arranging banks provided $500 million for the securitization program, while the government received more than $1 billion in bids for the remaining $300 million, the banker said. Dubai, which has been battling a debt crisis since 2009, said April 7 it hired Citigroup Inc. (C), Dubai Islamic Bank PJSC (DIB), Emirates NBD PJSC (EMIRATES) and Commercial Bank of Dubai PSC (CBD) to raise money to help fund transport projects. The offer included both conventional and Islamic portions.

Dubai’s government said in an e-mail it had no comment. A spokesman for Citigroup in Dubai didn’t respond to an e-mail seeking comment. Spokesmen for Emirates NBD, Commercial Bank of Dubai and Dubai Islamic Bank declined to comment.

Securitization is a process of issuing new securities backed by loans, mortgages, credit card debt or other assets like future income streams from a road-toll system. The London- based MEED weekly news magazine reported the story on its website yesterday.

Dubai Risk

Dubai, the second-biggest of the seven sheikhdoms that make up the United Arab Emirates, had to seek help from neighboring Abu Dhabi after the global credit crisis pushed property prices down by more than half from their peak in 2008, and frozen credit markets forced some state-owned companies to delay loan payments.

State-owned Dubai World signed a final agreement with its creditors in March to restructure about $25 billion of debt. The emirate’s government raised $500 million from the sale of 10- year dollar bonds with a put option after five years.

The notes maturing in June 2021 were priced to yield 5.59 percent, or 375 basis points more than the five-year mid-swap rate. The yield has climbed six basis points since then to 5.65 percent today, according prices on Bloomberg.

Dubai’s five-year credit default swaps jumped eight basis points to 335 yesterday, according to data provider CMA, which is owned by CME Group Inc and compiles prices quoted by dealers in the privately negotiated market. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler in Dubai at cmaedler@bloomberg.net

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