The emirate, which is slowly climbing out of a massive debt hole, planned to issue a dual-tranche $1.25 billion bond, a lead arranger said, with a yield of 6.7 percent on the $500 million five-year tranche and 7.75 percent on the $750 million ten-year tranche.

Order books for the bond sale stood at over $5.5 billion earlier on Wednesday, sources said, indicating healthy demand.

Analysts said the yield was attractive compared to the default risk.

"When you get a spread on a risky rate you always say it is a compensation for the default risk; in Dubai's case I do not see it," said Michael Ganske, head of emerging markets research at Commerzbank in London.

"Clearly Dubai has its own problems because of the past property bubble and the model that did not work out well, but Abu Dhabi on the other hand is absolutely cash rich."

Dubai said on Monday it would launch a benchmark dollar bond through the government's EMTN (European medium-term-note) program started in April 2008. The emirate last tapped markets in October 2009.

The emirate has been restructuring billions in debt owed by state-linked companies. Conglomerate Dubai World, whose debt standstill news in November 2009 shook global markets and savaged Dubai's reputation, reached a formal deal this month to restructure $24.9 billion.

The restructuring process also forced the emirate to distinguish the credit status of Dubai's government-owned "private" sector, estimated to have had debt in excess of $100 billion, from the government itself, which owed just $29 billion at the end of July 2010. While questions remain about the health of the overall economy devastated by the bursting of Dubai's real-estate bubble, investors now have a clearer idea of the risks.

The International Monetary Fund forecasts that Dubai faces its second consecutive year of negative economic growth in 2010. But with the sovereign crisis still playing out in the euro zone, the emirate has an investment story for emerging-market investors. Its future as a hub for regional trade and tourism remains intact. The ambition of being a top financial centre - which helped lead the emirate astray - is no longer a core part of Dubai's 2015 strategic plan, according to the bond prospectus, but Dubai remains ahead on that front too compared to regional rivals.

The sale comprises five- and 10-year bonds - to fly. Initial yield guidance puts the five-year bond yield at 6.75 percent, a slight premium to the 6.36 percent effective coupon on the five-year fixed-rate Islamic bond the government issued last November. It's as if investors think Dubai's debt crisis never happened.