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Thursday, 15 November 2007

DEWA sets Islamic bond price guidance

Dubai Electricity and Water Authority (Dewa) has set initial price guidance for its Islamic bond at around 120 basis points over the three-month London Interbank Offered Rate, a banker familiar with the deal said.The state-owned utility is planning to sell up to $2.5 billion of conventional and Islamic bonds, or sukuk. The pricing and other terms of the sukuk are being closely watched because it is one of only three public Islamic bond sales from the Gulf since a global credit crunch in July triggered by U.S. mortgage defaults largely killed the market. Sukuk comply with Islam's ban on lending on interest, and returns derived from underlying physical assets are paid to bondholders instead.Spreads for more than $15 billion of Islamic bonds that are part of a sukuk index started by HSBC and the Dubai International Financial Exchange have more than doubled since the end of June to 125 basis points over the London Interbank Offered Rate compared with 65 basis points, according to HSBC.The banker, who declined to be identified, said on Thursday Dewa would decide how much it would raise from each type of bond, conventional and Islamic, on Sunday.The sukuk would likely have a maturity of five years, he said.Moody's Investors Service has given the company an A1 credit rating and Fitch Ratings an AA- rating, citing links to the Dubai government.Dewa, Dubai's sole provider of power and water, is expected to invest more than $16 billion by 2012 to expand its networks and plants, Moody's said.Electricity consumption in the desert emirate, where day-time summer temperatures hover around 42 degrees centigrade, soared almost 30% to 21,475 gigawatt-hours last year, and water consumption climbed 11.3 percent to 64.9 billion gallons, according to Dewa's Web site. (Reuters, 15 Nov 07)

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