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Dubai Sukuk, Abu Dhabi TDIC Spread Narrows to Lowest Since 2009

The extra yield investors demand to hold Dubai’s 6.396 percent dollar Islamic bond over Abu Dhabi state-owned Tourism Development & Investment Co.’s 4.949 percent sukuk traded near a 16-month low after Dubai World signed a final accord to restructure its debt.

The spread narrowed 35 basis points to 213.3 after state-owned Dubai World signed the deal with creditors March 23, the data show. On March 29, the gap was 208 basis points, or 2.08 percentage points, the smallest since November 2009, when the company announced it would seek a "standstill" accord on its debt payments.

“The Dubai World debt deal has ebbed fears that Dubai may default on its repayments and has brought much needed comfort to the emirate’s market,” Louis Najem, a fixed-income sales trader in Dubai at Rasmala Investment Bank Ltd., said by telephone today. “Since Dubai names usually yield the highest, the emirate’s sukuk has seen the highest demand from clients that are looking to re-enter the market following the sell-off earlier this year.”

Dubai World, the state-owned holding company that sought to alter the terms on about $25 billion of debt, signed a final accord with lenders last week. The emirate ran up debt of at least $129.3 billion after it spent billions transforming itself into a tourism, trade and financial services hub, estimates by Credit Suisse Group AG show. The emirate received a $20 billion bailout from the Abu Dhabi government and the U.A.E.’s central bank in 2009.

The yield on Dubai’s sukuk maturing November 2014 has dropped 38 basis points to 5.47 percent since the announcement was made, according to prices on Bloomberg. The rate on TDIC’s Shariah-compliant bond maturing October 2014 fell 3 basis points to 3.34 percent.

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