* Yield on 2022 bond 20 bps tighter this week
* CDS compress nearly 18 pct since January
* Bond repayments, growth, liquidity lift sentiment
By Rachna Uppal
DUBAI, June 21 Dubai's sovereign bonds have
rallied this week, benefitting from good liquidity in the market
as well as a rise of investor confidence in the high-flying
emirate's ability to repay debts and sustain growth.
Traders cited a general improvement in investor sentiment
towards Dubai over the last several months, thanks to its
progress in restructuring corporate debt and its image as a safe
haven amid regional instability.
Dubai's most recent sovereign issue, a two-tranche, $1.25
billion Islamic bond, or sukuk, has tightened substantially
since its launch at the start of May.
The 4.9 percent, five-year, $600 million portion
was yielding just over 4.00 percent on Thursday,
about 10 basis points tighter since the beginning of this week.
The yield on the 10-year, $650 million tranche
has tightened about 20 bps since June 18, and
over 70 bps since issue.
"All three major debt milestones for Dubai Inc this year,
Dubai Holding, Jebel Ali Free Zone and DIFC Investments, have
been firmly ticked off the list," said Chavan Bhogaita, head of
markets strategy unit at National Bank of Abu Dhabi.
"I expect investor appetite for Dubai credits to remain
strong in the near to medium term as the fundamentals recover
and international investors find opportunities giving them yield
and a low correlation to the challenging situation in Europe."
Government-owned Jebel Ali Free Zone (JAFZA), an industrial
park, and DIFC Investments, owned by the emirate's sovereign
wealth fund, have both arranged repayment of their 2012
maturities, and without the need for direct state support.
The two Islamic bond redemptions, JAFZA's $2
billion-equivalent deal and DIFCI's $1.25 billion sukuk, were
considered a major test of Dubai's global credibility after its
2009 corporate debt crisis shocked markets.
Along with a $550 million sukuk repayment earlier this month
by Emirates airline, the debt repayments have created
a liquidity boost in the secondary bond market.
"With the DIFC and Wings (Emirates) sukuk maturing, there is
plenty of sukuk money looking for a home; in the current market
the liquidity in the region has proved to be the biggest driving
factor for asset prices," Invest AD said in a June 17 note.
Dubai's 7.75 percent, $750 million, 10-year bond maturing in
2020 was bid at 111.6 cents on the dollar on
Thursday to yield 5.95 percent, a compression of 23.2 percent
The yields hit a low of 5.8 percent on May 3 this year, and
has tightened about 100 bps year-to-date.
The cost of insuring Dubai's debt against default has also
declined sharply. Its sovereign five-year credit default swaps
were bid at 355 bps on Thursday, down nearly 18
percent since the beginning of the year.