Dubai bond sale to test market

DEWA's bond sale will test the measure of investor confidence in Dubai companies in the wake of restructuring proposals.

Dubai will face its first big test of international investor confidence today since one of its largest companies unveiled debt restructuring proposals last month. The emirate's power and water utility is targeting investors in the Middle East, Asia and Europe, for a US$1.5 billion (Dh5.5bn) bond sale. It will start meeting potential investors today, bankers said.

The Dubai Electricity and Water Authority (DEWA), which has Dh23.25bn of debt, is scheduled to issue up to $1.5bn in bonds as early as Friday. The planned sale is being seen as a test of appetite among international investors for fresh debt from the emirate's related companies. This follows the publication of debt restructuring proposals from Dubai World last week. The conglomerate announced in November it was seeking a standstill from its creditors. The reaction from the markets caused Dewa to delay tapping the markets late last year.

"This is a tricky time, post-Dubai World," said a banker involved in the deal who wished to remain anonymous. "This will be the acid test for the appetite of outside investors for risk from a Dubai-related entity." Royal Bank of Scotland, Standard Chartered, National Bank of Abu Dhabi and Citigroup are leading the DEWA issue. The roadshow, which starts in Singapore today before going on to Hong Kong and London, might not include the US, according to the banker.

Many observers expect investors, notably international players, to remain cautious before creditors agree to a restructuring of $24.8bn of Dubai World debt. Two weeks ago, the Dubai Government asked Dubai World creditors to extend their maturities by five to eight years, while offering to repay the government-owned developer Nakheel's sukuk holders in full when their bonds come due. It is expected to take several weeks before creditors announce their decision on the offer.

"The outcome of the Dubai World situation and the creditors' acceptance will be the determining factor ? for the potential performance of issues such as DEWA's," said Hassan Awan, an associate at The National Investor, an Abu Dhabi-based asset management company. He said the way the restructuring proposal was communicated was "a breath of fresh air for the investor community". "Granted it will take some time before the investor appetite will reawaken. But going forward, investors will do more due diligence and the Government will disclose more."

In its prospectus, DEWA said its financial obligations "should not be regarded as obligations by the Government". This follows an outcry by investors last year, when the Dubai Government surprised them by distancing itself from the debt accumulated by its entities. DEWA stressed that it had not applied for money from the $20bn in financial support extended by Dubai last year. However, the utility said "it expected to be eligible" should it decide to apply to the Dubai Financial Support Fund. The fund is an independent legal entity established to provide financial support and liquidity to government and government-related entities

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