2.17 PM Tuesday, 19 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 05:07 06:20 12:29 15:54 18:33 19:47
19 March 2024

GCC bonds put at $20.9bn in nine months

Published
By Staff

Gulf oil producers issued bonds worth around $20.9 billion in the first nine months of 2011, slightly lower than their value in the same period of 2010.

Despite the slump, the outlook remains encouraging.

The bond issuance in the six-nation Gulf Cooperation Council (GCC) began the year with full force before it started to slow down in the following months because of regional unrest and global financial upheavals, a Saudi bank said.

“Total GCC bond issuance during the first nine months of this year reached $20.9bn, as compared to $21.5bn in the same period a year earlier,” National Commercial Bank (NCB) said in a study sent to 'Emirates24|7'.

“The slowdown became particularly pronounced in Q3 and a number of regional issuers, even ones with fairly advanced plans, decided to cancel or delay their issuances in the face of considerable market nervousness.”

In the end, Q3 saw only four conventional issuances by two names, HSBC Bank Middle East and National Bank of Abu Dhabi, making this one of the weakest quarters for the regional bond market in recent history, the study said.

The total volume of issuance reached a mere $157.3mn, the report said, adding that the value represents a sharp drop from $3.4bn in 2Q11 and $9.6bn in 3Q10.

“The UAE was the only active primary market and financial services the only sector represented,” said NCB, the largest bank in Saudi Arabia.

Turning to corporate issues, it said the “disappointing” quarter was entirely dominated by bank issuance, adding that NBAD continued its international diversification strategy through two issuances, starting in July with a JPY10bn ($124mn) Samurai bond, the first ever by a Middle Eastern financial institution, with a 15-year tenor. The bond carries a coupon of 2.6 per cent.

This was followed by a smaller HKD100mn ($12.8mn) issue in August. In September, the bank also made a 25-year private placement of $20mn under its $five bn Euro Medium-Term Note programme.

“This represents the longest tenor offered by a GCC bank. The issue carries a coupon of 4.8 per cent,” the report said.

The study said Q3 saw no sovereign issuance apart from ongoing Treasury bill auctions by regional central banks for liquidity management purposes.

It said the slowdown in GCC conventional bond issuance appears to be at least partly linked to the poor health of the global financial sector and the diminished appetite of especially Western financial institutions for regional issuances.

“Nonetheless, many Gulf names remain keen to tap the bond markets with the banking sector likely to lead the way,” it added.

It noted that Qatar National Bank recently announced a $7.5bn Euro Medium Term Note programme to fund its growth ambitions. QNB is understood to be planning a $1bn bond very soon.

Abu Dhabi’s Union National Bank has also appointed advisors for a road show in connection with a potential issue, NCB said, adding that UNB may raise medium-term debt to partly repay a $one bn loan due in December.

Emirates airline is planning to issue $one bn in bonds to fund aircraft acquisitions following its highly successful issuance in June, the report said.

“The bond is in part understood to be a response to the growing funding challenges of European banks.”

Also in the UAE, Dolphin Energy in July completed road shows for a $1.93bn dual tranche bonder designed to refinance part of a $3bn loans. However, volatile market conditions prevented the pricing of the deal.

As for sukuk (Islamic bonds), the report said that the third quarter of 2011 offered growing indications of increasingly positive momentum in the sukuk markets, both regionally and especially on a global scale.

“By the end of the quarter, global sukuk issuance (YTD) had already beaten all previous records. A growing number of investors now seem to view quality sukuk as a safe haven at a time of global economic uncertainty,” NCB said.

At the same time, the market saw important instances of innovation. SATORP launched the first-ever project sukuk in the Gulf.

NBAD and Abu Dhabi Islamic Bank in August executed the first-ever Islamic equivalent of a repo transaction with a collateralized murabaha deal.

This represents a potentially very significant departure towards improving the mechanisms for liquidity management for Shariah-compliant institutions by using their sukuk holdings, according to the report.

“Even though the general mood of the sukuk market has turned very positive, new mainstream primary activity (closed issuances) in the Gulf was still limited to four corporate issuances with an aggregate value of just under $1.6bn, not an impressive figure by historical standards but more than 10 times the total conventional issuance seen during the quarter,” it said.

In addition to the standard issuance, the Dubai-based property developer Nakheel finally completed its Dh59bn debt restructuring and issued a much awaited sukuk to its trade creditors at the end of August.

“Overall GCC sukuk issuance during the quarter reached $3,190.1mn compared to $2,398.0mn the previous quarter and only USD361.7mn in 3Q10.”