Oct 22 2009
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Dubai CDS falls to year's lowest ahead of bond roadshow
Investors in the UAE will be briefed about the "fixed-income instrument" at a meeting on Sunday followed by London on Monday.
A Dubai Government official has clarified that the roadshow is not linked to the government's second $10 billion (Dh36.7bn) tranche of the $20bn bond programme.
Standard Chartered Bank , Dubai Islamic Bank , Bank of Tokyo-Mitsubishi and UBS AG have been retained to manage the roadshow.
Financial sources told Emirates Business the issue was likely to have Islamic and conventional components as invitations have also gone to Islamic institutions and also because one of the managers is an Islamic bank.
The new instrument's pricing has become a big debate. "Since Dubai CDS is trading at about 286 basis points (as of October 20), the lowest in the year, the new bond could be priced at around 286 basis points above five-year treasury or mid swap. While five-year treasury is traded at a margin of around 235 bps, five-year swap is traded at 40 bps above treasury," said a banker.
But, he added, this need not necessarily point to an indicative price. There are many other factors for the price discovery of this bond issue, which is coming more than 18 months since Dubai made its last public bond offer.
"The previous Dubai bond issue which hit the market in the third week of April 2008 had two tranches - a Dh4 billion fixed interest part as well as a Dh2.5 billion floating rate portion," said another analyst.
Meanwhile, the repayment of a $1.2bn (Dh4.4bn) securitised bond a month early by Nakheel , has reflected positively on the market.
Investors believe a voluntary settlement of the Dubai-based developer's $3.52bn sukuk on December 14, which the market believes is quite likely, could see a further drop of more than 30 basis points in Dubai CDS.
There has been renewed activity on the Nakheel (09) counter during the past few days. The sukuk traded on October 21 at around $107.25, the year's highest, yielding around 19.25 per cent.
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