Dubai 'to sell $1.5bn sukuk in Malaysia'

Media reports say emirate plans to tap world’s largest Islamic bond market to diversify its funding avenues.

KUALA LUMPUR // Dubai plans to issue a US$1.5 billion sovereign sukuk in Malaysia as the emirate looks to tap the world’s largest Islamic bond market to diversify its funding avenues, sources said today.

Work on the $1.5bn multi-currency programme was “more than 50 per cent” under way but the plan was not final given the volatility in financial markets because of Ireland’s debt troubles and tensions on the Korean peninsula, one source said.

“This will be the first foreign sovereign to issue ringgit (sukuk) in Malaysia,” said the source who asked not to be identified as the plan has not been announced.

“The Malaysian market provides cheap liquidity, interest rates are still attractive and the swap rates are also still attractive.”

Dubai’s finance chief said the government was meeting investors in Malaysia to explore opportunities for a potential bond issue.

"This trip is a part of our plan to meet investors and explore opportunities,” Abdulrahman al Saleh, director general of the Dubai Department of Finance, told Reuters when asked to confirm news that Dubai was aiming to issue about $1.5bn in multi-currency Islamic bonds in Malaysia. “We have not covered Malaysia in the previous visits.”

Another source said the total issuance size had not been been determined. “Tapping into a new investor base is important for Dubai, having gone through the global financial crisis,” the source said. “Putting its name to various investor base may make sense to the government.”

Malaysia has the world’s largest sukuk market, accounting for 42 per cent of total global sukuk issuance of $19.1bn last year, Thomson Reuters data showed.

But the bulk is local currency issuance because of tax incentive,s and the authorities want more foreign issuers to build up the market.

Gulf debt markets have reopened in recent months, with Dubai issuing a $1.25bn government bond in September after an agreement on Dubai World’s restructuring of some $25bn debt boosted market sentiment.

Gulf issuers sold about $6bn in debt in September and October, capitalising on low US interest rates and high demand for paper from the region.

Last month, Abu Dhabi Islamic Bank issued $750 million in sukuk which was nearly five times oversubscribed. Qatar Telecommunications launched a $1.5bn bond in October which received $15bn in orders.