In various parts of the City of London this week, analysts are scratching their heads and trying to answer one question: should they lend more money to Dubai?
A stellar cast of investment bankers from HSBC, Emirates NBD and UBS has been hired to sell the Dubai Government's 10-year dollar bond with a five-year put option.
This follows the sale of five and 10-year bonds by the Government of Dubai in October last year that carry a coupon of 6.7 per cent and 7.75 per cent respectively, according to data from Reuters.
The money is needed to repay old debt and to help finance its budget deficit, even if it is shrinking. According to the bond prospectus, Dubai's budget deficit more than halved to Dh6.02 billion (US$1.63bn), or 2 per cent of GDP, last year from 2009.
But is this enough to encourage investors, already reeling from the news that Greece, part of the EU, now has the lowest creditor rating in the world? Dubai, of course, is unrated.
Those in favour of the new Dubai issue point to the recent successful and over-subscribed $1bn bond for Emirates Airline and tightening credit default swaps (CDS) spreads.
"There is a growing perception that Dubai is the beneficiary of the Arab Spring," said a banker close to the deal who did not want to be named. "The UAE and Qatar are the only two countries in the region that have not seen any protests over the past few months. They seem stable. In addition, there is a general hunger for decent yields in emerging markets."
Pricing therefore will be key. It is expected to be about 375 basis points over five-year US treasuries, which compares favourably to the CDS spreads of 338 basis points over treasuries.
"This issue is attractively priced," said Mohammed Hanif, the chief executive of Insparo, an asset management company based in London.
"Dubai has done a good job of restoring confidence, which is definitely high in the sovereign being able to borrow, refinance and repay any debts. The worst is definitely over, although we might not see the same level of enthusiasm at the corporate level." Opponents, however, point out the ink is barely dry on the Dubai World debt deal. "Dubai World isn't yet fully operative as a rescheduling," said one observer.
This is unlikely to deter bankers flogging the deal, nor investors hoping to participate. They will also base their appetite for the risk on the perception Abu Dhabi will backstop any new debt, particularly if they are bonds, as happened in 2009.