Dubai’s default risk dropped almost four times more than the Middle East average this month as a series of debt repayment agreements showed government-related companies are benefiting from an economic recovery.
The cost of insuring the emirate’s debt for five years retreated 40 basis points in June to 355 yes terday, according to data provider CMA. That compares with an 11 basis-point decline in average credit default swaps in the Middle East to 320, while contracts for the Group of 10 nations fell 15 basis points in the period to 150, data compiled by Bloomberg show.
Jebel Ali Free Zone, a business park operator in Dubai under Dubai World, and DIFC Investments are among companies that have refinanced debt. Investors regard these deals as evidence that Dubai is living up to pledges that its companies would repay debt without state help as economic growth accelerates, pushing bond yields to record lows. “All cylinders are firing and Dubai is definitely making strong progress with its deleveraging efforts,” Gus Chehayeb, a Dubai-based researcher on Middle East credit markets at Exotix, said by phone.
Jebel Ali Free Zone raised $650 million on June 12 by selling seven-year Islamic bonds to help repay a Dh7.5 billion ($2 billion) sukuk ahead of its November maturity. The company, which has $2.7 billion of debt maturing through 2019, is also arranging a $1.2 billion Islamic loan to repay the sukuk. DIFC Investments obtained a $1.04 billion syndicated facility from a group of banks to help pay a $1.25 billion Islamic bond due this month.
The yield on Jebel Ali’s seven per cent sukuk due 2019 fell 62 basis points since they started trading last week to 6.38 per cent at 4:36 pm in Dubai, data compiled by Bloomberg show. The yield on the Dubai government’s 6.396 per cent Islamic bonds due November 2014 plunged 47 basis points this month to 3.65 per cent.
The emirate’s $82 billion economy, which relies on trade and hospitality for more than a third of gross domestic product, benefited from 10 per cent growth in visitors last year.