Dubai's first bond sale since 2014 backed mainly by Middle East, European funds

Dubai's $2 billion dual-tranche bond sale on Wednesday was backed mostly by funds in the Middle East, Europe and the United Kingdom, a document showed, while the emirate's lack of a rating may have contributed to Asian investors shying away.

It was Dubai's first foray into the public debt markets since 2014, as the Middle Eastern tourism and commerce hub seeks to bolster finances hurt by the COVID-19 pandemic.

The debt sale comprised a $1 billion tranche of 10-year sukuk, or Islamic bonds, at 2.763 percent and a $1 billion tranche of 30-year conventional bonds at 4 percent. Fund managers said on Wednesday the Dubai deal was priced attractively for the emirate.

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The bonds were trading up following the issuance, said Doug Bitcon, head of credit strategies at Rasmala Investment Bank.

“At current levels, the longer end of the unrated Dubai curve looks attractive relative to the Baa2/BBB rated Sharjah curve. This is evident in the yield on the new 30-year Dubai
government issue which is trading just below 4 percent versus around 3.5 percent for the 30-year Sharjah government bond,” Bitcon said.

Fund managers took a majority of the sukuk, buying 52 percent, while banks and private banks (PBs) took 44 percent, according to a document from one of the banks leading the deal seen by Reuters.

Investors from the Middle East were the biggest buyers of the sukuk, which attracted $6.6 billion in orders, taking 48 percent. UK and other European investors got just over a quarter, Asian buyers bought 16 percent and offshore US investors took 10 percent.

Abdul Kadir Hussain, head of fixed income asset management at Arqaam Capital, said fund managers taking more than half the sukuk was encouraging for the overall sukuk market.

Fund managers dominated the conventional tranche too, taking 78 percent, while banks and private banks got 17 percent.

Half of the investors in the 30-year bonds, which received $3.4 billion in demand, were from the UK and Europe. Offshore US investors took 21 percent, Middle Eastern buyers bought 16 percent and Asian investors accounted for 13 percent of the bond distribution.

“The lack of a rating may have been a factor in lower Asian participation,” Hussain said.

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