Dubai Financial Market (DFM) has announced the listing of a $750m sukuk (Islamic bond) for the government of Dubai on 30 April.

The 15-year-old bond has been raised by Dubai’s Department of Finance and was more than three times oversubscribed. It was priced at a profit rate of 5 per cent.

It is the first 15-year sukuk to be issued globally, according to the Department of Finance, and will set a new benchmark in terms of accessing long-term financing in Dubai.

Ali Soner Guney, fixed-income fund manager at National Bank of Abu Dhabi, says that although there is investor appetite for long-term debt, it is only for certain issuers. 

“In pursuit of yield, investors are looking at longer-term maturities with improved credit conditions. Dubai Sukuk has become an attractive issue. However for corporations outside government-related entities, 15 years is still a bit distant maturity to aim for,” he says.

The issuance was priced at the lower end of the initial price guidance of 5-5.125 per cent. The sukuk will be used to refinance existing debt obligations.

Dubai has been able to enjoy the improved borrowing conditions in the emirate, with the pricing coming in lower than the five-year EMTN bond price which stood at 6.4 per cent

“The pricing was fair, no more, no less,” says Montasser Khelifi, senior analyst at Dubai-based Quantum Bank.

Yet, the market was expecting Dubai to come to market with a larger issuance.

“We were expecting a larger size [of issuance] of at least $1bn given the debt maturities happening this year,” Khelifi says. He adds that the government is likely to return to market with another issuance before the end of this year in order to meet this year’s debt obligations.

Dubai Islamic Bank, Emirates NBDCapital, HSBC, National Bank of Abu Dhabi and Standard Chartered Bank were the joint lead managers and bookrunners for the sukuk.

A global research report from Bank of America Merrill Lynch says that Dubai’s sovereign debt is “stabilising”, following the issuance of the sukuk.

As of March this year, the report estimates that Dubai government debt stands at $54.8bn, representing 55.9 per cent of GDP. This is slightly more than the $50.5bn owed in the same period last year.

The report says that although Dubai government’s planned expenditure is expected to grow in the coming years, if the emirate is careful it will not worsen its debt burden.

A proportion of the planned increased spending relates to Dubai’s hosting of Expo 2020 and this expenditure will not take place until 2016-2020, by which time the bank forecasts Dubai will be in a better fiscal position.

“Fiscal room to accommodate the additional spending without jeopardising debt dynamics could have sensibly increased by that time, if the Dubai government remains prudent,” says Jean-Michel Saliba, Middle East and North Africa economist at the bank.