Dubai Default Risk Retreats to Lowest Since Dubai World Debt Delay in 2009

A Nakheel sign advertises land for sale on Dubai World’s Palm Jumeirah island. Photographer: Gabriela Maj/Bloomberg

Dubai’s default risk fell to the
lowest level since Dubai World roiled global markets with a debt
restructuring in 2009, as Emirates airline sold bonds and local
entities reach debt accords.

The cost of protecting Dubai’s debt against default dropped
to 324 basis points today, according to data provider CMA at
2:28 p.m. in London. The five-year credit default swaps surged
from 325 basis points on Nov. 24, 2009 to 655 three days later
after Dubai World announced plans to restructure about $25
billion of debt.

Emirates, the world’s biggest airline by international
traffic, sold $1 billion of five-year bonds yesterday, yielding
330 basis points over the benchmark mid-swap rate. State-owned
Dubai World reached a final agreement with its lenders in March,
while Dubai Holding LLC and property developer Nakheel PJSC are
in talks with creditors to restructure a total of about $20
billion.

“The Emirates bond was a factor in the tightening of the
CDS, because of the demand and its pricing,” Usman Ahmed, the
head of fixed income at Emirates NBD Asset Management, a unit of
the United Arab Emirates’ biggest bank, said. “It helped re-
price the Dubai curve. The demand for Emirates’ bond showed
confidence returning to Dubai’s debt market.”

‘Piece of Dubai’

The yield on Dubai government’s 6.7 percent bond maturing
October 2015 declined 2 basis points, or 0.02 percentage point,
to 5.16 percent at 6:04 p.m. in Dubai, according to Bloomberg
composite prices.

Dubai, which doesn’t have a rating, and its companies ran
up at least $129.3 billion of debt, according to estimates by
Credit Suisse Group AG, to develop its property, tourism, trade
and financial-services industries. Dubai’s government on May 16
rescued Dubai Bank PJSC, an Islamic lender owned by Dubai
Holding LLC and Emaar Properties PJSC (EMAAR), after loan losses rose.

The default risk dropped because of the Dubai World
restructuring, Emirates’ bond sales and “Dubai’s perception as
a safe haven amid the turmoil in the Middle East and North
Africa,” said Rawad Hakme, co-manager of fixed income
allocation at Dubai-based EFG-Hermes U.A.E. Ltd., a unit of
investment bank EFG-Hermes Holding SAE. “Simply put, everyone
seems to want a piece of Dubai.”

More Expensive

Dubai credit default swaps are still more expensive than
those of Egypt and Tunisia, two countries that saw their
presidents toppled in popular uprisings that swept the Middle
East this year. Egypt’s contracts fell 5 basis points to 299
today, the lowest level since Jan. 14, while Tunisia’s credit
default swaps were at 165, according to CMA. The data provider
is owned by CME Group Inc. (CME) and compiles prices quoted by dealers
in the privately negotiated market.

The United Arab Emirates, a federation of sheikhdoms of
which Dubai is the second-largest, has avoided the unrest that
spread to Libya, Yemen, Syria, Oman and Bahrain.

To contact the reporters on this story:
Alaa Shahine in Dubai at
asalha@bloomberg.net;
Dana El Baltaji in Dubai at
delbaltaji@bloomberg.net

To contact the editor responsible for this story:
Claudia Maedler at
cmaedler@bloomberg.net