Emaar Properties PJSC plans to sell as much as $2bn of Islamic bonds, its first in more than six years, as the developer of the world’s tallest tower in Dubai taps appetite for higher-yielding assets.

BOND ISSUE Emaar said it will meet fixed-income investors in Europe, Asia and the Gulf for its bond programme (Bloomberg Images)
BOND ISSUE Emaar said it will meet fixed-income investors in Europe, Asia and the Gulf for its bond programme (Bloomberg Images)

The government-controlled company said January 18 it will meet fixed-income investors in Europe, Asia and the Gulf for its bond programme. The yield on Dubai’s 6.396 percent Islamic note due November 2014 fell to 6.32 percent, down 374 basis points from an record high of 10.06 percent on February 15, according to Bloomberg data. Emaar’s sukuk will need to yield between 6.5 percent and 7 percent, said Silk Invest Ltd, a London-based fund that specialises in frontier markets.

Dubai World’s debt restructuring and a recovery in the emirate’s property market bodes well for growth, according to Silk Invest. Emirates Telecommunications Corp, the UAE’s largest phone operator, and Dubai’s government also plan sukuk sales as near-zero interest rates in the US and Japan drive investors to emerging markets. Net inflows into developing nation debt reached a record $53.1bn in 2010, said Cambridge, Massachusetts-based research firm EPFR Global.

“The sukuk should attract a wide base of investors from Asia, Middle East and North Africa,” Usman Ahmed, head of fixed-income at Emirates NBD Asset Management, a unit of the United Arab Emirates’ biggest lender which oversees $300m in bonds, said in an e-mailed response to questions January 19. “You can’t paint all Dubai-based real-estate companies with the same brush.”

Emaar’s Islamic bond programme would be the first corporate sukuk offer from Dubai since the emirate received a $20bn bailout from the Abu Dhabi government and the UAE’s central bank in 2009. Tamweel PJSC, a UAE mortgage lender controlled by Dubai Islamic Bank PJSC, sold AED1.1bn ($299m) of Islamic bonds in July 2008.

Dubai’s government may sell bonds in 2011, Abdulrahman Al Saleh, director general of the Department of Finance, said last month. Etisalat, as Emirates Telecommunications is known, said it will sell sukuk under its $1bn Islamic bond programme, according to a November 11 statement.

Nakheel PJSC, the property unit of Dubai World, may issue an Islamic bond to trade creditors in the first quarter, said Faisal Mikou, executive vice president at Investment Corp of Dubai, one of three main state holding companies, on November 28.

Real estate prices in Dubai slumped by almost 60 percent from their peak in mid-2008 as the credit crisis forced banks to curb lending, Ahmed Badr, analyst at Credit Suisse Group AG said Jan.uary 9. Property is often used as collateral for Sharia- compliant bonds.

Sukuk sales in the six-member Gulf Cooperation Council, which includes the UAE and Saudi Arabia, were $4.5bn last year, down 75 percent from a record high of $18.2bn in 2007, according to data compiled by Bloomberg. Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, fell 15 percent last year to $17.1bn.

Sharia-compliant debt in the six-nation Gulf Cooperation Council returned 13.6 percent last year, the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index shows. Global sukuk gained 12.8 percent, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Bonds in developing markets rose 12.2 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Moody’s Investors Service rated Emaar’s sukuk programme B1, the fourth-highest junk rating, while Standard & Poor’s rates the company’s foreign debt BB, the second-best non-investment grade. “The negative outlook reflects refinancing risks that Emaar is facing over the coming 18 months,” Moody’s said in an e-mailed statement January 18.

“I won’t buy because it’s not investment grade, but there’ll be plenty of players seeking higher-yielding assets,” Zeid Ayer, who helps manage $1.6bn of Sharia-compliant assets at CIMB-Principal Islamic Asset Management Sdn, said in an interview from Kuala Lumpur on January 19.

Emaar hired HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Standard Chartered Plc to arrange the investor meetings and will issue subject to market conditions, the company said in its statement. Emaar last sold an Islamic bond in July 2004 when it issued $65m in five-notes.

The developer issued $500m of five-year convertible notes last month to pay contractors and convert some of its $1.4bn of short-term loans into longer-term debt. The 7.5 percent note maturing December 2015 received more than $3bn in bids. The yield declined 32 basis points last week to 6.35 percent, Bloomberg data show.

The company in October reported third-quarter net income dropped 7 percent to AED612m, missing analysts’ estimates, on higher costs and writedowns. About 90 percent of Emaar’s revenue is generated in Dubai, the second-largest sheikhdom in the UAE.

Economic growth in the country will accelerate to 3.2 percent this year, from 2.4 percent in 2010, the International Monetary Fund said in October.

“We remain confident that over the long term Dubai’s real estate sector will recover,” John Bates, head of fixed income at Silk Invest said January 20. “A number of catalysts are slowly improving the outlook, the effective bailout of Aldar, the ongoing Dubai World restructuring as well as various asset sales.”

Aldar Properties PJSC, part-owned by Abu Dhabi government- investment arm Mubadala Development Co, agreed Jan.uary 13 to sell assets and convertible bonds to Abu Dhabi.

The extra yield investors demand to hold Dubai’s government debt rather than Malaysia’s narrowed 42 basis points to 340 since Dubai World and its creditors agreed to alter terms on $24.9bn of debt on September 10, data compiled by Bloomberg show.

The yield on HSBC/NASDAQ Dubai UAE US Dollar Sukuk Index, which tracks 10 sovereign and corporate securities, rose six basis points last week to 5.63 percent on Jan. 21. The yield reached 5.53 on January 19, the lowest since May 2008.

“Dubai sukuk isn’t necessarily a ‘bad word’,” Emirates NBD’s Ahmed said. “There is good demand for sukuk that are backed by issuers with sustainable business models.”