The government hired CIMB Investment Bank Bhd., a Kuala Lumpur-based unit of CIMB Group Holdings Bhd., the world’s top sukuk arranger this year, as a lead manager to sell between $1 billion and $1.5 billion of the securities, a person with knowledge of the plan said Nov. 24. Malaysian Prime Minister Najib Razak said Oct. 26 the Dubai Department of Finance is proposing a multi-currency sukuk program.
“I doubt they can get it done in any sort of size without a rating,” Abdul Kadir Hussain, who manages $2 billion of mainly Persian Gulf assets as chief executive officer of Mashreq Capital in Dubai, said in a response to e-mailed questions Nov. 25. “Normally Malaysian investors are relatively conservative and invest in very high grade type issuers.”
Dubai is tapping international debt markets to raise funds as the government and state-controlled companies grapple to service borrowings that Barclays Capital estimated in a September report at about $112 billion. The Persian Gulf’s financial hub may sell shares in some of its large businesses, Sheikh Ahmed bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee, said in the emirate yesterday.
The yield on Dubai’s 6.396 percent sukuk due November 2014 rose 1 basis point to 6.756 percent today, the highest level since Nov. 17, data compiled by Bloomberg show. The yield reached 10 percent on Feb. 15. The average yield on Islamic notes sold by Gulf Cooperation Council issuers rose 11 basis points last week to 5.84 percent on Nov. 26, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index.
Doesn’t Need Rating
Dubai doesn’t need a credit rating for now, Mohammed Ibrahim al-Shaibani, director general of the Dubai Ruler’s Court, said yesterday at the conference in Dubai. Abu Dhabi is rated Aa2 at Moody’s Investors Service and AA at Standard & Poor’s, the third-highest investment grade rankings. Malaysia is rated A3 at Moody’s and A- at S&P, the seventh-highest ratings.
“If the sukuk issued in ringgit does not have a local rating, definitely it will hurt demand,” Shera Shah Shaharudin, a Kuala Lumpur-based fixed-income manager at Nomura Asset said in a response to e-mailed questions Nov. 26. “Domestic institutional investors with strict internal guidelines will not be able to buy non-rated issues.”
The emirate’s sukuk plan is still being discussed and the timing hasn’t been decided, the person, who asked not to be identified as the details are private, said last week. Dubai government officials’ trip to Malaysia was part of a plan to meet investors and explore opportunities, the Dubai Department of Finance said in an e-mailed response to questions Nov. 28.
‘Conservative’ Investors
State-owned Dubai World in September reached an accord with most of its creditors to restructure $24.9 billion of debt. Dubai raised $1.25 billion from non-Islamic bond sales that month in its first debt offering since the Dubai World credit crisis roiled global markets last November. It received orders of about $5 billion. The five-year, $500 million note was priced to yield 6.7 percent and the $750 million, 10-year bond was priced to yield 7.75 percent.
“I don’t think Dubai needs a credit rating as the Abu Dhabi backstop is still behind them,” Gabriel Sterne, London- based economist at Exotix Ltd., an investment bank specializing in illiquid bonds, equities and asset management, said in a response to e-mailed questions Nov. 25. “If it’s priced around 8.3 percent for a 10-year bond, I think it would be a good buy.”
Rating Rules
Foreign currency-denominated bonds sold by overseas issuers in Malaysia don’t require a rating, the Kuala Lumpur-based Securities Commission said in an e-mailed reply to questions Nov. 26. Ringgit debt sold by foreign entities needs to be rated unless the securities are convertible or non-tradable with the agreement of the purchaser that a rating isn’t required, the commission said.
Malaysia’s 3.928 percent Islamic note due in June 2015 fell last week, driving the yield 11 basis points higher to 2.9 percent, according to prices provided by Royal Bank of Scotland Group Plc. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s widened one basis point to 383, according to data compiled by Bloomberg.
‘Good Buy’
Sales of Islamic debt from the six-nation GCC dropped 40 percent to $4 billion so far this year, according to data compiled by Bloomberg. GCC sukuk returned 11.8 percent this year, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. Bonds in developing markets returned 14.2 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.
The difference between the average yield for emerging- market sukuk and the London interbank offered rate narrowed three basis points to 341 on Nov. 26 and has widened 31 basis points since Sept. 30, the HSBC/NASDAQ Dubai US Dollar Sukuk Index showed.
The U.A.E.’s central bank and Abu Dhabi stepped in last year to support Dubai with $20 billion in loans. Dubai is “not worried” about debt maturing in 2011, Ahmad Humaid Al Tayer, governor of the Dubai International Financial Centre, said in the emirate yesterday. Dubai is now on a sound financial footing, Sheikh Ahmed said.
Ringgit History
Borrowers from the Gulf that have sold ringgit-denominated bonds include Abu Dhabi Commercial Bank PJSC, the United Arab Emirates’ third-biggest bank by assets, and National Bank of Abu Dhabi PJSC. Abu Dhabi Commercial issued 750 million ringgit ($238 million) of notes in August, while National Bank sold 500 million ringgit of Islamic bonds in June in its first offering of debt in Malaysia.
Investors such as Choo Swee Kee of TA Investment Management Bhd. in Kuala Lumpur and Gerald Ambrose of Aberdeen Asset Management Plc’s Malaysian unit said they may buy Dubai’s bonds if they are rated. Aberdeen’s global units oversee more than $243 billion including Shariah-compliant funds.
“It really depends on the rating because you have to assess the issue,” Choo, who manages about $202 million as chief investment officer at TA Investment, said in a telephone interview on Nov. 26. “If they are willing to pay 8 percent a lot of people would rush in.”
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