'We are in the process of price discovery at the moment,' says a banker close to the transaction. 'The issue will be completed by 27 May.' The consensus in the local banking community is that the issue will be priced somewhere around 60 basis points (bp) over Emirates interbank offered rate (Ebor). 'This would be about right, given the 70-bp price on the Emiratesissue [in 2001] and the pricing on Bahrain's debut eurobond,' says another banker. 'The Dubai bond will have to get inside both of these, but they aren't going to really try and squeeze the market, I don't think.'

The five lead managers on the transaction are Emirates Bank International, HSBC, National Bank of Abu Dhabi, National Bank of Dubaiand Standard Chartered Bank.

ABN Amrohas been involved in providing advice to the government of Dubai on the transaction (MEED 31:3:03).

The possibility remains that heavy subscription could see more than the targeted AED 1,500 million raised. Just as the Emirates bond issue was expanded, there is a strong possibility that the government could be privately targeting AED 2,000 million ($545 million).

This second dirham-denominated issue by a local institution is a landmark in the development of the local capital markets. 'As the number of issues grows, so a yield curve can be built, which will not only act as a benchmark for future issuers to price off, but will, in itself, encourage secondary market activity,' says one of the lead managers. 'If you want to play a game of marbles, you need a full bag. With this issue there will be two marbles in the bag.'

Secondary market trading in the Emirates issue has been thin, mainly because of its attractive yield and the high levels of liquidity in the local market.

'Liquidity is very strong at the moment and, unsurprisingly, the Emirates instruments have been mainly treated as take-and-hold vehicles. There is no incentive to trade. But the more paper issued, the more rapidly an active secondary market will develop,' says the banker.

As with the Emirates issue, the government of Dubai paper will be unrated. However, the timing of the move to raise the UAE's sovereign rating by Cyprus-based rating agency Capital Intelligence (CI)has been enjoyed in Dubai. CI on 13 May announced that it had raised the long-term foreign currency rating to A+ from A and its short-term foreign currency rating to A1 from A2. The rating agency also assigned a long-term local currency rating of A+ to the sovereign and a short-term local currency rating of A1.