Three-year old debt clouds hanging over Dubaidispersed this week as two of the most challenging bond maturities at itsgovernment-related entities were refinanced, increasing confidence in the marketand sparking renewed buying in the emirate’s secondary credit.
The DIFC Investments, the company that runs Dubai’s iconic international financial centre, repaid in full a $1.25 billion sukuk which matured on June 13, using funds raised through a partially government-guaranteed Islamic loan and a programme of asset sales.
Its repayment followed Jebel Ali Free Zone, which owns and operates a strategically vital trading hub, going a long way towards refinancing a $2.04bn-equivalent dirham sukuk due in November by issuing a highly successsful new $650 million, seven-year sukuk last Tuesday. The bond is part of a package, including $1.2 billion loan that is already in place, to help cover the redemption.
“This is a game-changer, a pivotal moment in the Dubai credit story. These maturities had been the focus and in the space of a week they have been stabilised,” said Samad Sirohey, Manging Director at Citigroup, which ran Jafza’s sukuk alongside Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD, National Bank of Abu Dhabi, Standard Chartered and joint lead manager Samba.
These transactions draw a line under the three big bond maturities that Dubai entities were facing this year, after Dubai Holding Commercial Operations Group, a unit of Dubai Holding, paid off a $500 million obligation ahead of its February due date.
A relatively low yield of 7 per cent for a B2/B rated credit did not deter investors from buying Jafza’s new sukuk, which attracted orders worth around $2 billion. The bond promptly traded up on the break and held resolutely above par to be quoted at 101.375-101.75 at the end of its first days’ trading, beating some traders’ expectations and lifting the rest of the market.
“People expected Jafza to trade around re-offer due to tight pricing, but there was surprisingly good demand and interest, which contributed to good momentum across the Dubai space in general,” said one trader.
The most recent sukuk from Dubai’s Department of Finance attracted a keen bid, to be quoted last Wednesday at 103.25 in cash. Dubai’s five-year CDS spread, meanwhile, has tightened almost 100bp since January 10, withstanding the resurgent volatility of the past few months to end last Wednesday’s session at 371.56bp, according to Thomson Reuters data.