Dubai government received orders of about US $5 billion for its two-part bond soffer of US $1.25 billion. It was the emirate’s first sovereign issue since state-controlled holding company Dubai World sought to renegotiate debt repayments. Dubai, which doesn’t have a credit rating, last sold bonds in October 2009, when the Department of Finance raised US $1.93 billion from five-year Islamic notes.


Dubai-based Emaar Properties, the region’s largest real-estate developer followed by increasing its offering of convertible bonds to US $450 million from US $375 million. Other companies, such as Arab Petroleum Investments Corp., an energy investment unit whose largest shareholders are the U.A.E. and Saudi Arabia, said it plans to sell a benchmark-sized Saudi-riyal bond.


Dubai’s 5-year, US $500-million issue was priced to yield 6.7 percent and the US $750-million, 10-year bond was priced to yield 7.75 percent. Dubai’s 6.396 percent Islamic bonds maturing 2014 were yielding 6.381 percent at 11:20 a.m. in the emirate, down 44 basis points this month, according to prices on Bloomberg.


Dubai’s government has projected a deficit of AED 5.99 billion (US $1.6 billion) this year, narrowing from AED 12.9 billion last year, according to a bond prospectus published 27 Sept. 2010. Dubai’s government had outstanding debt of AED 105.47 billion at the end of July, according to the prospectus.


September 27, 2010



Analysis and Forecast: Decreasing Risk


This is the latest in a serious of positive news about Dubai, as it edges towards resolving its debt issue. The news is encouraging as the bond market reactivates. However, there remain a number of concerns that need to be addressed. Firstly, the Dubai World debt is still not resolved completely. Although the government has acknowledged its sovereign debt is AED 105 billion, the blurred lines between commercial and sovereign debt makes confirming this figure impossible.


Dubai World is closely associated with the government and the government has not been clear about what it defines as commercial or sovereign debt, often giving conflicting statements.


Secondly, the Dubai plans for the revival of the economy are still unclear. With the emirate heavily reliant on real-estate and construction, and after a recent mass cancellation of projects in the emirate, it is not by any means clear how Dubai will jump start the economy.


However, despite the serious concerns, the move indicates confidence is slowly returning. Dubai still needs to resolve the outstanding concerns and build on the confidence it is slowly rebuilding.


Below is Political Capital’s current estimate of the Dubai World outstanding debt, which has not been included in the bond issue prospectus, but should have.