Dubai’s sovereign bonds have rallied this week, benefiting from good liquidity in the market as well as a rise of investor confidence in the high-flying emirate’s ability to repay debts and sustain growth.
Traders cited a general improvement in investor sentiment towards Dubai over the last several months, thanks to its progress in restructuring corporate debt and its image as a safe haven amid regional instability.
Dubai’s most recent sovereign issue, a two-tranche, $1.25bn Islamic bond, or sukuk, has tightened substantially since its launch at the start of May.
The 4.9%, five-year, $600mn portion was yielding just over 4.00% yesterday, about 10 basis points tighter since the beginning of this week.
The yield on the 10-year, $650mn tranche has tightened about 20 bps since June 18, and over 70 bps since issue.
“All three major debt milestones for Dubai Inc this year, Dubai Holding, Jebel Ali Free Zone and DIFC Investments, have been firmly ticked off the list,” said Chavan Bhogaita, head of markets strategy unit at National Bank of Abu Dhabi. “I expect investor appetite for Dubai credits to remain strong in the near to medium term as the fundamentals recover and international investors find opportunities giving them yield and a low correlation to the challenging situation in Europe.”
Government-owned Jebel Ali Free Zone (Jafza), an industrial park, and DIFC Investments, owned by the emirate’s sovereign wealth fund, have both arranged repayment of their 2012 maturities, and without the need for direct state support.from gulf times.