Dubai Electricity & Water Authority (Dewa) has appointed the US’ Citigroup and the UK’s Standard Chartered Bank to arrange a bond issue of up to $2bn in the first quarter of 2010.

Bankers close to Dewa say the power and water utility will issue a bond of between $1bn and $2bn next year.

The bond is likely to be the first attempt by a Dubai-based issuer to raise money from international capital markets since the announcement by government-backed conglomerate Dubai World that it plans to ask investors for a six-month standstill on its $27.2bn debts.

The Dubai World announcement could deter investors from buying Dewa’s debt.

The utility raised $2.2bn in April through a syndicated loan priced 300 basis points above the London interbank offered rate (Libor).

Fixed-income traders in Dubai say Dewa should expect to pay about 600 basis points above Libor for its new bond.

Unlike Dubai World, Dewa has an explicit guarantee from the Dubai government.

The documentation for the Dubai government’s $1.9bn sukuk (Islamic bond) issue in October said Dewa’s debts counted as direct obligations on the Dubai government.

“Any Dubai name will be highly unlikely to be able to issue a bond without a government guarantee,” says one London-based bond analyst. “Any issuer without a sovereign guarantee will face a prohibitively high cost of debt now.”

The company has not disclosed why it needs to raise a bond.