DEWA marks debt mkt return with $1 bln sukuk
DUBAI, Feb 28, (RTRS): Dubai Electricity and Water Authority (DEWA) returned to global debt markets after an absence of more than two years on Thursday with a $1 billion Islamic bond, or sukuk, which drew very strong demand.
The fully government-owned monopoly printed the five-year paper at par at a profit rate of 3 percent, a statement from lead arrangers said.
The final profit rate was at the tighter end of guidance released earlier in the day, indicating healthy investor appetite.
Deal
Order books were reportedly over $5.5 billion before they closed in the Middle East, and traders indicated the deal was already bid higher in the grey market ahead of pricing.
The rarity of a regional utility issuing bonds combined with DEWA’s investment grade rating of BBB and returning confidence in Dubai, which has helped bring down yields on existing debt, were all factors boosting demand for the deal.
DEWA last tapped global debt markets in October 2010, when it priced a $2 billion, dual-tranche conventional bond. The $500 million 6.375 percent portion of the deal maturing 2016 was bid at 2.7 percent on Thursday afternoon.
Its 2020 maturity, a $1.5 billion bond with a coupon of 7.375 percent, has seen yields tumble in the last few days to about 3.8 percent from 4 percent as investors eye bigger returns.
Traders indicated the new 2018 paper was aggressively priced, which could affect secondary performance.
“It (pricing) seems slightly tighter than the existing curve and there is not much left on the table for investors,” said a regional investor, adding the paper could come under selling pressure post-issue.
“DEWA went for a small size to limit the impact of U.S. Treasury rates. It is the uncertainty on long term rates that has kept the markets edgy in the past few weeks so the borrower chose to limit the rates risk,” the investor added.
In comparison, Dubai government’s $600 million sukuk maturing 2017 was offering a yield of about 2.9 percent, indicating DEWA was paying only about 10 bps premium for an extended 10 month maturity.
Standard Chartered, Citigroup, RBS and local lenders Emirates NBD, Dubai Islamic Bank and Abu Dhabi Islamic Bank were bookrunners on the deal.
The airport, which is expected to cost around KD 900 million ($3.2 billion) and open in 2020, would aim to serve as a regional air travel hub. Kuwait currently has only one international commercial airport.
The target is to get 25 million passengers passing through the new airport each year, Faisal Al-Ustaith, a director at the Ministry of Public Works, told Reuters on Wednesday. Kuwait’s current capacity is around 7 million annually.
“We expect an announcement during the first quarter of this year,” Ustaith said.
Several of the bidding companies may join together to form a consortium that gets the winning bid, he said, adding that the bidders were all foreign companies.
Stalled
Large development projects in Kuwait have been stalled for years by political wrangling and bureaucracy, leaving the oil-rich state with underdeveloped infrastructure and low levels of foreign investment.
In the last few months, however, authorities have begun issuing contracts for some major projects, raising hopes that one of the Gulf’s most under-performing economies may catch up with its neighbours.
Officials say the number of passengers has risen significantly in recent years because of population growth and more frequent travel.
This has strained the current airport, which overflows with travellers during public and religious holidays in the country of 3.7 million people, two thirds of whom are foreigners.
The new airport will have 51 aircraft gates, with 21 slated for use by large aircraft such as the Airbus 380, Ustaith said.