Dubai launches smaller bond issue in return for better price

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Dubai Government launched a $500 million 10-year bond on Wednesday, according to sources. Lead arrangers commented that it seems the emirate prefers smaller bond issues in return for a better price.

The bond was valued at 5.591 percent and got under way at 375 basis points over five-year midswaps. Recommendation for the bond was initially between 375 basis points and 385 basis points over five-year midswaps. Spreads have reduced to attractive levels in the last few months, in part due to Dubai’s re-discovered safe-haven status and political stability.

Dubai’s latest bond includes a put option after five years, allowing investors to redeem their investment ahead of maturity at full value. The structure is not commonly used for issues from the region.

One of the factors that may affect demand for this deal is that the 10 year maturity with 5-year put is a new structure for investors in this region, who in general have shorter term targets. International investors are more likely to be comfortable with such structure, however this group of investors are likely to demand a higher spread from the issuer.

Market sources said order books were above $1 billion at 1145 GMT, according to Reuters.

Dubai last came to the bond market in September 2010 when it issued a dual-tranche $1.25 billion bond. That issue was four times oversubscribed and reflected increased global investor demand for higher yields. Regional banks and other state-linked companies are also tapping the market, thanks to global demand and attractive pricing.

Emirates airline raised $1 billion in a five-year issue in the begining of June, yielding 5.125 percent, which attracted orders of over $5 billion.

Apparently,  investors are re-evaluating Dubai risk, and the successful launch of these two (bonds) shows that at the right price investors are looking at Dubai names again.

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