* Dubai picks HSBC, NBAD, Stanchart and Dubai Islamic for sukuk
* Sukuk may be announced as early as Tuesday
* Dubai seen taking advantage of low borrowing costs
DUBAI, Jan 21 (Reuters) - The government of Dubai has mandated four banks for a potential Islamic bond, or sukuk, issue, four sources familiar with the matter said on Monday, as the emirate seeks to benefit from its lowest borrowing costs since a crippling debt crisis in 2009.
Three of the sources indicated the new issue could be announced as early as Tuesday, and two sources said the borrower was looking to raise at least $1 billion from the sale. All sources declined to be identified because the information is not yet public.
A Dubai government spokesperson was not immediately available for comment.
It has picked Dubai Islamic Bank, HSBC, National Bank of Abu Dhabi and Standard Chartered Plc to arrange the potential new sale, the sources said.
Unrated Dubai's five-year credit default swaps, or the cost to insure against sovereign default, were trading at 211 basis points on Monday, at their lowest since hitting levels above 600 bps at the peak of its debt crisis in late 2009.
Since then, the emirate has been at pains to regain its credibility among international investors, successfully refinancing or restructuring debt maturities as well as benefiting from safe haven status amid broader regional unrest.
"It makes sense for them to come now as the spreads are ridiculously low," said a banker away from the deal.
Yields on Dubai's existing bonds have continued to drop this year, after a dramatic rally in 2012. Its $750 million 7.75 percent bond, which matures in 2020, was bid at 128 cents on the dollar on Monday, to yield just 3.5 percent, about 30 bps tighter since the start of the year.
Dubai last tapped global debt markets in April with a $1.25 billion two-tranche sukuk, which was substantially oversubscribed.
It is understood the government will issue ahead of state-owned utility Dubai Electricity and Water Authority (DEWA) which has also indicated its intention to raise about $1 billion in a sukuk sale in the first quarter.