The recent price action in Dubai bonds and sukuk shows that investors have cash to put to work on regional credits. The Dubai 2023 sukuk is eight points above where it was in August and has seen a three-quarter point rally since the start of the year, with other credits also enjoying a more stable range than they experienced in the second half of 2013. United Arab Emirates investors say that the sell-off in US Treasuries witnessed in December was all but ignored by the local market and are surprised by the lack of issuance so far in 2014.
There is nothing unusual about Middle East issuers taking their time to get going at the start of a year. In 2013, it was not until January 22 that the Dubai government itself opened the regional bond market with its $750m 10 year sukuk.
Syndicate officials can no doubt point to the time it takes to get documentation together, the flexibility of budget plans and also the abundance of demand over supply for regional debt as reasons why borrowers are in no particular hurry.
But 2013 also served up an important lesson that emerging markets can turn sour very quickly — and with lasting impact. The end of May saw previously buoyant Middle East bonds and sukuk turn sharply and suffer a prolonged, heavy sell-off, with very little primary market activity following from then until October.
There are several clear candidates to come to market in Dubai, but one in particular would do well to capitalise on its recent run.
GEMs Education issued a $200m perp sukuk debut with a 12% yield in November — a deal that investors at the time claimed was both much wider and smaller than the company had hoped to achieve.
Since then, GEMs’ sukuk has outpaced the market with a nine point rally to 109 — bringing the note’s yield to maturity to just 9.6% — and investors say the company could well make good on the premium it paid with a well timed tap.
Dubai Investments has also been looking to issue £300m for some time, but the Dubai government itself is the most likely candidate to reopen the regional market. Dubai’s 2020 Expo success will be a sure driver of infrastructure projects and the emirate also has debt to refinance. Last year Dubai added an unprecedented $500m 30 year bond to its 10 year sukuk offering, but investors believe a medium sized offer of five or 10 years is more likely this time — or a combination of the two tenors.
Whatever deals are or are not in the pipeline, conditions could not be better for Dubai's borrowers. And if last year is anything to go by, those conditions must not be taken for granted.