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Two United Arab Emirates firms set price guidance for Islamic bonds yesterday, showing Gulf borrowers how much funding costs have risen since U.S. mortgage defaults sparked a global credit crunch in July.
Dubai Electricity and Water Authority (Dewa) set initial guidance at 125 basis points over the London Interbank Offered Rate, while Ras Al Khaimah Investment Authority's (Rakia) indicated 150 basis points over Libor, bankers said.
The bankers, including those at arranging banks, declined to be identified.
The Dewa and Rakia sales are two of only three benchmark-sized sukuks, or Islamic bonds, to be marketed publicly in the Gulf since the U.S. home loan crisis made banks more reluctant to lend and raised borrowing costs. Benchmark-sized bonds are typically worth at least $500 million.
Before the credit crisis, the weighted average spread for more than $15 billion of Islamic bonds on the HSBC-DIFX Islamic bond index was 65 basis points over Libor at the end of June.
By the end of October that had widened to 125 basis points over Libor. Price guidance
A third benchmark-size sukuk is being sold by Jebel Ali Freezone, a business park around the Middle East's largest port. Price guidance is expected at between 120 and 130 basis points over the Emirates Interbank Offered Rate, which is similar to U.S. dollar Libor, two bankers said.
Arrangers Dubai Islamic Bank and Deutsche declined to comment on the figure, saying official price guidance was not yet available.
Eleven bankers and analysts polled by Reuters last month said they expected borrowers to grow accustomed to higher borrowing costs and return to market instead of waiting for cheaper funding.
Jebel Ali Freezone is looking to raise at least $1 billion from the Islamic bond, bankers familiar with the deal said on Sunday.
Dewa wants as much as $2.5 billion from conventional and Islamic bonds and will decide on Sunday on how much to raise from each, two bankers familiar with the deal said. Rakia, which manages the investments Ras Al Khaimah's government, said its sale would be of benchmark size to raise money for islands it is building off the emirate's coast. Credit Suisse, HSBC and NBD Investment Bank are its arrangers. Barclays Capital, Citibank and Dubai Islamic Bank are arranging Dewa's sukuk sale, and the proceeds will be used for expansion by Dubai's sole provider of power and water.
Moody's Investors Service has given the company an A1 credit rating and Fitch Ratings an AA- rating, citing links to the Dubai government.
Sukuk comply with Islam's ban on the receipt of interest, and returns derived from underlying physical assets are paid to bondholders instead. |
