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Dubai eyes $1.5 bln Malaysian sukuk -sources

First ringgit sukuk from foreign sovereign in Malaysia.

November 24, 2010 12:16 by

Dubai plans to issue about $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, sources said on Wednesday.

Work on the $1.5 billion multi-currency programme was “more than 50 percent” 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, one source said.

“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 $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 been determined.

“Tapping into a new investor base is important for Dubai, having gone through the global financial crisis,” the source said. “Putting its name to various investor base may make sense to the government.”

Malaysia has the world’s largest sukuk market, accounting for 42 percent of total global sukuk issuance of $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 $1.25 billion government bond in September after an agreement on Dubai World’s restructuring of some $25 billion debt boosted market sentiment.

But 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 $6 billion in debt in September and October, capitalising on low U.S. 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 $750 million in sukuk which was nearly five times oversubscribed. Qatar Telecommunications Co launched a $1.5 billion bond in October which got $15 billion in orders.

(Additional reporting by Raissa Kasolowsky in Dubai; Editing by David Chance)

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