Dubai Mulls Bond Sale Amid IPO Prospect as Property Rebounds
Dubai’s government is considering issuing bonds again this year and selling stakes in its companies to the public as the real estate industry spurs an economic recovery, the emirate’s top finance official said.
The government, which was on the brink of defaulting in 2009, reduced its borrowing costs by 40 percent when it sold $750 million of 10-year Islamic bonds in January, in addition to its first-ever 30-year bonds. Investor confidence in the emirate has improved after three state-linked companies paid or refinanced $3.75 billion of debt in 2012, in addition to a 3.3 billion dirham ($898 million) liability that matured in April.
“We did the sukuk a couple of months ago and I’m sure people were surprised to see that it was a 30-year unrated,” Sheikh Ahmed bin Saeed Al Maktoum, head of the emirate’s Supreme Fiscal Committee, said in an interview in Dubai yesterday. “People have trust and we’ll always keep our word.”
Issuers in Dubai, one of seven sheikhdoms in the United Arab Emirates, have stepped up bond sales this year as the city’s credit risk tumbled to 187 basis points yesterday, the lowest since at least the start of the global financial crisis in 2008, data compiled by Bloomberg show. Investors also piled into Dubai stocks, helping the measure rally 33 percent in 2013, the world’s third-best performer after gauges in Ghana and Argentina among 94 indexes tracked by Bloomberg.
Even after this year’s rally, the DFM General Index’s market value of 157 billion dirhams is less than half the value at the start of 2008. The stock exchange requires new listings for a boost, according to Sheikh Ahmed.
“Another big company is needed on the stock market,” Sheikh Ahmed said, declining to specify a time frame. “Many companies” that fall under the umbrella of Investment Corp. of Dubai, the emirate’s main state-owned holding company known as ICD, would be candidates for initial public offerings, he said. ICD was set up in May 2006 and holds stakes in more than 30 companies, including Emirates, the world’s biggest airline by international passenger traffic.
“The profile of ICD is big,” said Sheikh Ahmed, who is also a board member of the company. “It will good for the stock market here in Dubai and the UAE.”
Dubai’s equities and bonds have advanced as the city witnesses a pick up in its property industry, which suffered from a 65 percent slump in home prices in the aftermath of the 2008 crash. The average price of a mid-range villa in Dubai increased 44 percent in the year to April to the highest since November 2008, according to Cluttons LLC data on Bloomberg.
“Real estate has recovered a lot quicker than people thought,” Sheikh Ahmed said. “People were expecting 10 years or so. I think the market will continue like it is.”
Repeated pledges by policy makers in Dubai has also helped lure investors in the past year. The government has $26 billion of principal payments outstanding on Islamic and non-Islamic bonds, including $17.93 billion maturing next year, data compiled by Bloomberg show. Moody’s said in March that Dubai faces a “pivotal year” in 2014.
The emirate is committed to repaying its debts, and will do “whatever we have to do,” Sheikh Ahmed said. Issuers in Dubai sold about $5.8 billion of securities so far in 2013, up 81 percent from a year earlier, according to data compiled by Bloomberg.
The yield on Dubai’s 5.591 percent bonds due in 2021 has fallen 107 basis points, or 1.07 percentage points, in the past year to 3.94 percent at 6:35 p.m. in Dubai, according to data compiled by Bloomberg. The emirate’s economy is set to expand 4.6 percent, on average, between 2012 and 2015, more than twice the average of the previous four years, according to government forecasts.
“I’m very confident because of what is happening in Dubai at the moment,” Sheikh Ahmed said. “The interest is very much like before the real estate slowdown. It has picked up very quickly.”