Bond issuance unlikely to pick up steam in UAE

Though the successful bond issue from National Bank of Abu Dhabi (NBAD) has boosted the confidence of other UAE issuers, most other UAE banks are unlikely to jump on the bandwagon soon, according to sources in the market.

NBAD sold a five-year benchmark bond worth $750 million (Dh2.75 billion) priced at 178 basis points over mid swaps. The order book was oversubscribed five times with orders in excess of 250.

Talking to Emirates Business, financial controller of a bank in Dubai said: "I think the time is not yet opportune for Dubai banks to go to the market. We need the key indicators including credit default swap (CDS) to improve further before we could seriously think of launching a capital market debt product."

Raj Madha, a leading independent banking analyst told this newspaper that the pricing in NBAD seems to have been at a sensible level, with the book well covered and with interest coming from a broad cross-section of investors. "However, I don't think this provides proof in principle for the Dubai banks, as many of the uncertainties around their operating environment have not been resolved," said Madha.

There were reports that State-owned utility Dubai Electricity and Water Authority (Dewa) has delayed negotiations with banks for the $1.5bn bond by two weeks due to "administrative matters".

Emirates NBD had earlier told this paper that a bond issue from the bank in the immediate future was unlikely. Dewa had delayed the same bond issue once earlier also. The pricing of the recent NBAD bonds at 178 basis points above midswap meant that the bank has got a better pricing than in an earlier issue when NBAD raised $850m last year.

Germaine Benyamin, associate with HC Brokerage said the fact that the bonds were priced at a lower rate than NBAD's previous issuance in September at 180 bps reflects confidence is rebounding in the UAE baking sector especially for big players as NBAD.

"This reflects confidence is back in UAE blue chips, we may see other big players following suit in raising funds through bonds issuance instead of chasing expensive deposits. With growing interest in emerging markets bonds given their attractive yields, we would also see corporates tapping international markets for refinancing through bonds issuance."

Given the fact that pricing is less than anticipated by the bank and less than its previous issuance in September, analysts believe that the market is slowly phasing out all negative effects and now able to differentiate between good quality corporates from the rest of the market.