$750m sukuk sale boosts Dubai’s bid for Islamic economy hub

Dubai has furthered its efforts to become the centre of the Islamic economy. Lee Hoagland / The National

The Dubai Government yesterday sold a US$750 million sukuk with a 15-year maturity, furthering its efforts to become the centre of the Islamic economy.

The Islamic bond was priced at a profit rate of 5 per cent, with the order book more than three times oversubscribed, according to the Dubai Department of Finance, which issued the sukuk. Analysts said it would be listed on the Dubai Financial Market.

“Dubai has aspirations to be a centre of the Islamic economy and is working very hard towards that goal. Malaysia is still the dominant player, but Dubai and the Middle East are catching up fast,” said Khizer Usmani, the director of rates and structured solutions, treasury and capital markets at Mashreq.

Officials hope the issue will help to set a new benchmark for the emirate, with the 15-year duration offering a new reference point on Dubai’s credit curve for companies linked to the emirate to raise longer-term funding.

The lifespan of the sukuk was relatively unique, said analysts, as many international Islamic bond issues usually favour shorter maturities. Some regional issuers have sold sukuk for much longer periods, with Saudi Electric Company in March selling a $1 billion, 30-year sukuk. That issuance helped kick-start the GCC sukuk market, which registered its slowest first quarter in five years.

“The long tenor is good news as it shows there’s good appetite for Dubai in the long-term,” said Khatija Haque, the head of Middle East and North Africa research at Emirates NBD.

“The long tenor extends the yield curve – last year there was a 10 year sukuk issue so pushing out to 15 years is another step in the right direction.”

The sale is the first since January last year, when Dubai raised $1.25bn with a two tranche sale made up of a 10-year sukuk and 30-year conventional note. The banks arranging the transaction are Dubai Islamic Bank, Emirates NBD, HSBC, National Bank of Abu Dhabi and Standard Chartered.

The Department of Finance said proceeds will be used for general budgetary purposes and refinancing, without providing more detail.

“It makes sense when you see how choppy emerging markets have been to lock in a low rate long term and benefit from the liquidity,” said an analyst who spoke on condition of anonymity. “What will they do with the proceeds? It is not spelt out in detail. They could be used to help out Dubai World.”

Dubai World, the government-linked company that had to restructure about $25bn in debt after the 2009 financial crisis, faces a $4.4bn loan maturity in May next year.

In a move likely to help further warm the investment climate towards Dubai and its stable of companies, Dubai Holding Commercial Operations Group yesterday said it would voluntarily prepay the entire outstanding principal of $319.3m, along with accrued interest, of the amortising $555m facility maturing on December 31 next year. The company, owned by the Dubai ruler, said the prepayment will be made from available funds.

In January, the company repaid a €750 million (Dh3.8bn) bond. The group’s next significant maturity is a £500m (Dh3.08bn) bond due in February 2017.

* Additional reporting by Frank Kane

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