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Business – Dubai May Pay 375 Basis Points Premium in Bond Sale

Haris Anwar

Oct. 27 (Bloomberg) — Dubai’s medium-term debt may be priced to yield 375 basis points above benchmarks as the sheikhdom seeks to attract investors in its first international bond sale in more than a year, according to a banker involved in the deal.

The five-year fixed dollar-denominated Islamic bonds may be priced above the midswap rate, while the dirham-denominated floating-rate sukuk will be benchmarked above the three-month emirates interbank offered rate, said the banker who didn’t want to be identified because the deal hasn’t been completed.

Dubai’s sales are its first since credit markets froze, ending a four-year real-estate boom. The pricing of the medium- term notes, which are unsecured, compares with a 50 basis-point yield premium that the Dubai government paid on its five-year floating-rate note in April last year.

The order book for the dollar sukuk is near $1.5 billion, while the dirham Islamic bond is close to reaching 3.5 billion dirhams ($950 million), the banker said. One basis point is 0.01 percentage point. Mitsubishi UFJ Securities International, Dubai Islamic Bank PJSC, Standard Chartered Plc and UBS AG are arranging the sale.

Borrowing

Dubai and its state-related companies borrowed $80 billion to transform the emirate into a financial services and tourist hub. The seizure of credit markets, which began in August 2007, sparked concern that Dubai won’t be able to repay some of its debt. The sheikhdom may borrow $1 billion to refinance Dubai Civil Aviation’s Islamic bond maturing next month, two bankers familiar with the transaction said last week.

The cost of protecting Dubai bonds from default was at 294 basis points yesterday, according to credit-default swap prices from CMA Datavision in London. The contracts, which fall as perceptions of credit quality improve, reached a year-low of 287 basis points last week after soaring to 976 basis points in February.

This bond offering is separate from a $20 billion support fund that the government set up for state-related companies.

To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net

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October 27, 2009 - Posted by | Uncategorized |

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