Emirates Bond Likely To Fund Expansion

February 24, 2011

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A bond issue from Dubai's flagship carrier Emirates is likely to be for expansion purposes rather than refinancing debt and would attract strong demand in spite of the current regional upheaval, a banker said.

Emirates, one of the Arab world's largest airlines, which has a USD$190 million loan repayment due on February 26, has mandated banks for a bond issue, IFR markets reported earlier this month.

The airline has total debt maturities in the first quarter of 2011 of nearly USD$780 million. This includes a USD$500 million bond repayment due on March 24.

"I don't think they will be refinancing the (USD$190 million) loan. Things are looking good at the moment," said one Dubai-based banker who did not want to be identified.

"They have several plane orders and expansion plans. Probably they will go forward with the bond issue," the banker said.

Emirates' President Tim Clark declined to comment on the airline's funding options for the loan.

It has been reported that Emirates has picked HSBC, Morgan Stanley and Deutsche Bank to arrange the potential bond sale, but details on size and tenor are to be confirmed.

Clark said the company is still "testing the waters" and mandating banks does not guarantee it will issue a bond.

Yet, banking sources say a bond issue this year is likely.

One Gulf-based banker said a bond sale could be expected in the second quarter. However, anti-government protests across the Middle East have rocked financial markets and could have implications for the new issue pipeline.

"Emirates is a flagship UAE company and bond investors will like (the) relatively high implied government support," said John Bates, head of fixed income at asset manager Silk Invest.

"However, it needs to launch at a decent premium to the government debt and the deal size will need to be carefully managed by the lead banks."

MIDEAST UPHEAVAL UNLIKELY TO DETER ISSUERS

Volumes for bond sales in the Gulf Arab region in 2011 are expected to be higher than last year but political volatility in nearby states shows little signs of abating, with the risk of protests spreading still high.

The pipeline for new issues from the United Arab Emirates is still thought to be healthy, and investor appetite for high-yield emerging market bonds is strong.

"The timing will be crucial but that is always the case. The political crisis in the region has not affected UAE, so there is no reason for Emirates to be worried about that," said the Dubai-based banker.

(Reuters)