$1.25b bond proceeds to benefit key projects


By Gulf News report  www.gulfnews.com

Dubai: Proceeds of the $1.25- billion (Dh4.59 billion) dual-tranche bond issued by the Dubai Government on Thursday will be deployed for infrastructure projects, said Abdul Rahman Al Saleh, Director General of the Dubai Department of Finance.

He added that Dubai has no plan to issue more bonds “in the near future”.

“Available resources and operational revenues are sufficient at the moment for both operational and capital expenditures,” Al Saleh said in a statement to Dubai TV’s Gulf Economy programme aired last night.

The bond issue was four times oversubscribed and priced at a yield of 6.7 per cent on the $500 million five-year tranche and 7.75 per cent on the $750 million 10-year tenor with spreads of 542.7 and 527 basis points, respectively, over US Treasuries. The issue was not rated by a credit rating agency.

“Dubai was under no pressure to get loans. The bond issuance was designed to enhance Dubai’s position in international markets, and to prove its ability to enter these markets,” Al Saleh said. He added that the option of issuing the bonds was chosen also to maintain Dubai’s good relations with international investors.

The massive response to the bond issue “is an answer to all those who were sceptical about the emirate’s ability to deal with investors and enter international markets”, Al Saleh said.

He stressed that Dubai’s government was always sure of the bond’s success, because it came as a result of a plan that was set early this year, when a number of government experts visited Europe and Asia to meet investors and talk to them in person about Dubai and its success stories, its achievements and its vital economic sectors.

Infrastructure projects

Al Saleh said about 360 institutions bid for the bonds. More than 190 of them were for the second category of the issuance worth $725 million that will be payable in 10 years at a profit rate of 7.75 per cent, whereas the first category of $500 million received 170 subscription requests.

Asian investors accounted for 35 per cent of subscribers, whereas 30 per cent of investors were from Europe and 30 per cent from the Middle East, he said.

Al Saleh said the financing would be used exactly as detailed in the prospectus attached to the issuance, and is related to infrastructure projects and the “very important and strategic projects” such as the expansion of Dubai International Airport and the Al Maktoum International Airport which was opened in June.

He said the air transport sector was one of Dubai’s main economic pillars, and despite the international economic slowdown, this sector registered important growth rates.

Al Saleh also touched upon the decline in the Dubai government’s budget deficit by half to Dh5.99 billion in 2010.

He said that it could have been possible to cease or postpone infrastructure projects and approving a budget with a surplus, but the government approved this budget to complete vital infrastructure projects.