Emirates eyes benchmark 5-year dollar bond

May 30, 2011 - 9:49:16 pm

DUBAI: Emirates, Dubai’s flagship carrier, is eyeing a benchmark five-year dollar bond with early talk indicating pricing of 350 basis points over midswaps, the lead arrangers said yesterday.

Emirates, one of the world’s fastest-growing airlines, wraps up its bond roadshow, which began in Hong Kong on May 23, in Switzerland yesterday.

HSBC, Deutsche Bank, Emirates NBD and Morgan Stanley have been mandated as joint lead managers (JLMs) and joint bookrunners for the bond sale.

“They (Emirates) are looking at a five-year, at about 350 basis points over midswaps,” a banking source at one of the lead banks said.

Two other bankers with lead arrangers confirmed the details. Asked about the expected size of the offering, the first banking source said: “I do not think they are being too greedy with this one.”

Benchmark bond issues are typically at least $500m.

Final pricing and launch was expected to take place mid-week with US and British markets closed yesterday for holidays.

While political instability in the wider region has hampered bond issuance this year, there is a large pipeline of potential Gulf issues. The UAE has been largely shielded from the unrest and is seen as a safe haven among regional peers.

Emirates itself postponed a planned offering in March after the uprisings in North Africa made rates more expensive.

“One of the reasons Emirates has not been a frequent issuer in the bond markets is because the company is very particular about the pricing at which it obtains its funding,” said Chavan Bhogaita, head of markets strategy department at National Bank of Abu Dhabi.

“Furthermore, it is not strapped for cash and, hence, it has had the flexibility to wait until the spread environment in the bond markets improved substantially.”

Dubai’s sovereign credit default swaps, or the cost to insure its debt, are in the region of 340 basis points. CDS prices can help assess the credit risk associated with an entity.

It has been mooted in the past that proceeds of any bond offering would be used for expansion plans, as the airline does not face financing issues.

The Arab world’s largest carrier posted a record profit of $1.5bn for 2010, up 52 percent.

Middle East bond issuance saw good demand last year as investors bought into attractive yields amid a low interest rate environment globally. REUTERS