Dubai plans to issue about USD 1.5 billion sovereign sukuk in Malaysia as the Gulf Arab emirate looks to tap the world's largest Islamic bond market to diversify its funding avenues, people with direct knowledge of the deal said on Wednesday.
Work on the USD 1.5 billion multi-currency programme was "more than 50%" under way but the plan was not final given the volatility in financial markets due to Ireland's debt troubles and tensions on the Korean peninsula, said one source not authorised to speak to the media.
"This will be the first foreign sovereign to issue ringgit (sukuk) in Malaysia," said the source who asked not to be identified as the plan has not been announced.
"The Malaysian market provides cheap liquidity, interest rates are still attractive and the swap rates are also still attractive."
Dubai's finance chief said the government was meeting investors in Malaysia to explore opportunities for a potential bond issue.
"This trip is a part of our plan to meet investors and explore opportunities," Abdulrahman al-Saleh, director general of Dubai Department of Finance, told Reuters when asked to confirm news that Dubai was aiming to issue about USD 1.5 billion multi-currency Islamic bonds in Malaysia.
"We have not covered Malaysia in the previous visits."
Another source said the total issuance size had not been determined.
"Tapping into a new investor base is important for Dubai, having gone through the global financial crisis," the source added. "Putting its name to various investor bases may make sense to the government."
Malaysia has the world's largest sukuk market, accounting for 42% of total global sukuk issuance of USD 19.1 billion last year, Thomson Reuters data showed.
But the bulk are local currency issuance due to tax incentives and the authorities want more foreign issuers to build up the market.
Gulf Arab debt markets have reopened in recent months, with Dubai issuing a USD 1.25 billion government bond in September after an agreement on Dubai World's restructuring of some USD 25 billion debt boosted market sentiment.
But a Dubai-based fixed income trader said it was unlikely unrated Dubai, a part of the United Arab Emirates, would be able to raise anything near USD 1.5 billion.
"It is going to be if anything next year. The market would not appreciate them coming back so soon," the trader said.
"So it will be tough to see them raising too much, especially when the problem with Malaysia is that they tend to invest into a lot of investment-grade stuff, and with Dubai not being rated at all that is going to be an issue," he said.
Saleh told Reuters in September Dubai was determined to get a rating but not immediately, with timing depending on market conditions.
Sources had said Dubai Group, which is part of a conglomerate owned by Dubai's ruler, missed two payments on separate loans in recent weeks, including one arranged by Citibank.
Gulf issuers sold about USD 6 billion in debt in September and October, capitalising on low US interest rates and high demand for paper from the region.
Other potential issuers include Abu Dhabi's International Petroleum Investment Co, Qatar National Bank and Oman's Mohammed Al-Barwani Petroleum Services.
Last month, Abu Dhabi Islamic Bank issued USD 750 million in sukuk which was nearly five times subscribed. Qatar Telecommunications Co launched a USD 1.5 billion bond in October which got USD 15 billion in orders.
READ MORE ON Dubai eyes $1.5 bn Malaysian sukuk: Sources
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