Dubai may launch a dollar-denominated Islamic bond as early as the third quarter of this year after well-received presentations to investors last week, banking sector sources familiar with the roadshow said on Monday.
One source at the arrangers of the roadshow – run by HSBC and Mitsubishi – declined to confirm whether Dubai might issue a bond later this year.
But a fund manager familiar with the presentations said they had pointed to a 7-10 year sukuk, and a senior fixed income trader said the issue could come in the third quarter.
“The arrangers said the reception was very good, they are talking about a 7-10 year sukuk,” said one European fund manager.
Dubai went on a non-deal roadshow, meeting non-Islamic investors in Switzerland, France, Germany and Britain between June 4-10, in a mixture of presentations and one-to-one meetings, investors said.
The presentations were designed to show Dubai’s general macro-economic outlook, without any specific deal plans, a source at one of the arrangers said.
“There was a very strong reception,” the source added. But pressed on whether a bond deal was in the works, the source declined to comment.
Dubai issued a five-year dollar and dirham two-tranche sukuk in October 2009, shortly before state-owned conglomerate Dubai World rocked markets with a standstill request on billions in debt payments.
The Islamic bond has been strengthening after Dubai World announced a well-received restructuring last month. Dubai’s $1.25bn 5-year tranche was trading at 96 on Monday, giving a yield of 7.48 percent.
A sukuk would likely be offered at more generous pricing than a conventional bond, providing a carrot for investors, fund managers said.
“I reckon there could be an issue sooner than later,” said one fixed income head familiar with Dubai’s presentation.
“Q3 now looks more of a possibility,” he said.
Dubai’s 2010 budget deficit was projected at AED6bn ($1.63bn), the government said in January, but Dubai officials were indicating a slightly smaller deficit of $1-1.5bn, the European fund manager said.
“Dubai could issue $1bn at least,” he added.
However, issuance may be delayed by Dubai’s need to get a credit rating, a prerequisite for many investors to buy international debt.