Dubai Bonds May Yield Same as Companies One Level Above Junk

Dubai, in its first international bond sale in 18 months, is being treated by investors the same as Russian companies with the lowest investment-grade ratings.

The sheikdom’s planned dollar-denominated securities, which aren’t rated, will be sold to yield 350 basis points to 400 basis points over the benchmark midswap rate, said three investors approached for the sale. That equates to a premium of 50 basis points, or 0.50 percentage point, more than debt sold by Russian issuers such as OAO Sberbank, which is rated BBB, two levels above high-yield, high-risk debt, Commerzbank AG says.

“It’s pretty fair to consider Dubai an investment grade credit at the BBB- or even a BBB level,” Luis Costa, an emerging-market debt strategist in London, said in a telephone interview. “Although the credit-quality may be aligned to its other BBB-area peers, you still have to input some premium given the leverage in Dubai.”