Dubai hired four banks including Citigroup Inc. to raise $800 million in financing backed by road toll receipts to help fund transport projects in the emirate.
The Department of Finance also appointed Dubai Islamic Bank PJSC, Emirates NBD PJSC and Commercial Bank of Dubai PSC to arrange the dual-currency, six-year financing, the Dubai government’s Media Office said in a statement. The transaction, including conventional and Islamic portions, may be syndicated to more lenders.
Dubai is recovering from the global credit crisis that battered its property industry and slowed trade and tourism, taking it to the brink of default in 2009. Economic growth in the emirate will accelerate to 4 percent in 2011 from 2.2 percent in 2010, according to Citigroup.
The toll-road deal is “an interesting and very positive initiative given the securitization involved,” said Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi PJSC in a e-mail. Dubai is using “more innovative funding strategies” to take advantage of the assets and cash flows that it has, he said.
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 government aims to cut spending this year in a bid to shrink its budget deficit and forecasts a gap of 3.78 billion dirhams ($1 billion) for the year, down from 5.99 billion dirhams projected for 2010, it said in January. Spending is projected at 33.7 billion dirhams, down 4.9 percent from the 2010 forecast published in a government bond prospectus in September. The deficit for 2011 is within the targeted ceiling of 3 percent of gross national product, it said.
Dubai, the second-biggest of the seven states that make up the United Arab Emirates, had to seek assistance from neighboring Abu Dhabi after the 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. Dubai World signed a final agreement with its creditors in March to restructure about $25 billion of debt.
Dubai’s five-year dollar bond rose, sending the yield to a record low. The yield on the 6.7 percent note maturing in October 2015 dropped 16 basis points to 5.68 percent as of 2:44 p.m. in the emirate, according to Bloomberg composite prices.
Dubai’s government last sold bonds in September, when it raised $1.25 billion in a two-part bond sale in its first sovereign debt issue since the Dubai World credit crisis shocked global markets in 2009. Its five-year, $500 million note was priced to yield 6.7 percent, while the $750 million 10-year bond was priced to yield 7.75 percent. The bonds generated more than 370 orders valued at about $5 billion, it said then.
Separately, Dubai Electricity & Water Authority, the state-owned utility, said today it paid a 5.4 billion-dirham syndicated loan ahead of schedule. About 2.7 billion dirhams of the loan was payable on Oct. 13, DEWA said in an e-mailed statement.