Dewa shelves $2.5bn sukuk
Dubai Electricity & Water Authority (Dewa) postponed an Islamic bond sale on Monday on rising borrowing costs and expectations the United Arab Emirates will revalue its dollar-pegged currency, bankers said.
A global credit crunch triggered by defaults on US home loans in July has prompted many Gulf borrowers to shelve bond sales as banks became more reluctant to lend.
State-owned Dewa was aiming to sell as much as $2.5 billion of bonds to fund expansion. On Thursday, it priced the 3-year securities at 100 basis points, or 1 percentage point, over the 3-month London Interbank Offered Rate.
"The sale has been postponed due to market conditions," said an official at one of arranging banks. "It will come back to the market when conditions are more favourable."
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.
Islamic bonds are also known as sukuk.
"Look at sukuk before the credit crisis," said a prospective buyer of the bonds, who declined to be identified. "A lot of the demand came from the Europeans, but they are not lending any more ... they have their own problems."
Expectations that the United Arab Emirates will revalue its dollar-pegged dirham currency has also had an impact.UAE investors in dollar bonds fear a dirham appreciation because this would reduce returns in local currency. When the bonds mature, they would also be repaid less.
"There is the strong possibility of a revaluation of the dirham and investors do not want to hold dollar assets," said a banker from a Dubai-based lender. He did not want to be identified.
Two bankers said the Dubai utility company was now considering selling the bonds in dirhams.
Dewa is the latest casualty of market conditions in the region. Qatar Fertiliser Co, a unit of Industries Qatar, in October dropped plans to sell $1.2 billion of bonds. Source
A global credit crunch triggered by defaults on US home loans in July has prompted many Gulf borrowers to shelve bond sales as banks became more reluctant to lend.
State-owned Dewa was aiming to sell as much as $2.5 billion of bonds to fund expansion. On Thursday, it priced the 3-year securities at 100 basis points, or 1 percentage point, over the 3-month London Interbank Offered Rate.
"The sale has been postponed due to market conditions," said an official at one of arranging banks. "It will come back to the market when conditions are more favourable."
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.
Islamic bonds are also known as sukuk.
"Look at sukuk before the credit crisis," said a prospective buyer of the bonds, who declined to be identified. "A lot of the demand came from the Europeans, but they are not lending any more ... they have their own problems."
Expectations that the United Arab Emirates will revalue its dollar-pegged dirham currency has also had an impact.UAE investors in dollar bonds fear a dirham appreciation because this would reduce returns in local currency. When the bonds mature, they would also be repaid less.
"There is the strong possibility of a revaluation of the dirham and investors do not want to hold dollar assets," said a banker from a Dubai-based lender. He did not want to be identified.
Two bankers said the Dubai utility company was now considering selling the bonds in dirhams.
Dewa is the latest casualty of market conditions in the region. Qatar Fertiliser Co, a unit of Industries Qatar, in October dropped plans to sell $1.2 billion of bonds. Source
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