Transparent DW resolution positive for Dubai bonds: Moody's

The recent resolution of Dubai World debt restructuring and the transparent manner in which it was handled will be a "definite" positive for the proposed Dubai bond issue, a Moody's analyst told Emirates 24|7.

Asked if the Dubai World debt restructuring would result in the market viewing the Dubai bond issue more positively than what it would have perhaps six months ago, Khalid Howladar, a Dubai-based senior analyst at Moody's, said in an emailed response: "That's a definite. The resolution of DW was ultimately handled in what seemed a transparent and mature way with inclusion of creditors into the process."

He added: "The conclusion sets some precedent for the future whereas before there was very little."

Dubai's government is expected to sell bonds as early as this week, bankers familiar with the plan said last week. HSBC Holdings, Deutsche Bank and Standard Chartered have been hired for the issue, Reuters said quoting bankers who declined to be named. The $500 million to $1 billion bond issue is expected to have a tenure of between five and seven years, two fund managers separately said.

Moody's Howladar expects the markets to react "well" to the bond issue. He added: "It's a relatively difficult time for the local debt markets but there has been appetite for sovereign and quasi-sovereign issuance."

Credit Suisse, a bank, also notes that a new Dubai bond sale is likely to see strong demand. "Our bond desk think that the issue will see strong demand," Credit Suisse said in a note earlier today.

Investor sentiment regarding Dubai has seen massive improvement over the past month since the announcement of the DW debt resolution, with stock market investors voting with their dirhams and pushing the Dubai Financial Market index up by nearly 16 per cent since the beginning of this month.

"The conclusion of the Dubai World's debt restructuring saga is a credit positive development for the UAE banking system and puts an end to the uncertainty that the threat of a liquidation had created," Moody's had said in a report in mid-September.

"As per our estimates, at an average range of 10-20 per cent of expected losses, the UAE-rated banks would be able to absorb such impairment charges without materially impacting their capital positions," Moody's Dubai-based analyst John Tofarides wrote in that report.

"We also note that as of the second quarter of 2010, most UAE banks had set aside sufficient provisions against Dubai World either in the form of specific or collective provisions. Further provisions may not be necessary during the lifetime of the loans as we expect the entity to be able to honour the restructured terms (with the lower interest payments)," he had pointed out.

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