GCC bond issuance jumps 140% in Q3

State and corporate refinancing needs at $60bn in 2011

The third quarter of 2010 saw robust growth in terms of both the number and the aggregate value of GCC conventional bond issuances.

The number of offerings almost doubled from 14 in the second quarter of this year to 26 in Q3 while the total amount issued increased by a remarkable 141 per cent, from $4.5bn in Q2 to $10.8bn during the third quarter, according to a report by NCB Capital.

“In a marked departure from the importance of sovereign activity during much of the past year, corporate bonds led the way this quarter as much of the backlog was activated in more benign market conditions,” the report said. “Companies accounted for 71 per cent of the total value of issue and 62 per cent of the number of offerings,” it added.

The US dollar was once again the most popular currency for conventional corporate bond issuers, reflecting the record-low interest rate environment in the US and the intense global appetite for emerging market debt, it highlighted.

The company noted that regional governments and corporates face significant debt refinancing needs in the near future – estimated at around $60bn in 2011 – and periods of diminished market stress represent opportunities to proceed with the necessary issuance plans, NCB Capital has said in a note issued today.

“At the same time, the improving risk perceptions of the GCC issuers, coupled with the global chase for emerging markets paper, helped instil confidence,” it said.
GCC debt capital markets observed positive trends in the third quarter of 2010, with the revival in market activity particularly pronounced in the post-Ramadan period. A number a high-value issues, including the launch of a $500m Emaar issue and a $1.5b Qtel offering, were announced.

Dubai utility Dewa too has recently successfully tapped the markets for a $2bn bond offering.

“In contrast to the second quarter, when Gulf International Bank was responsible for the sole high-value corporate bond issue ($935mn), the third quarter saw a flurry of activity, significantly reducing the market’s previous dependency on government issuance,” NCB Capital said.

“Dubai World’s agreement with 99 per cent of its creditors in September 2010 to alter the terms on $25bn of debt has restored investor confidence,” it said, adding that the four-times oversubscription witnessed by the $1.25bn conventional bond issue by the Government of Dubai was proof of improved confidence.

At the same time, regional bank lending and the IPO market remain lacklustre, it said. “Somewhat paradoxically, instead of taking up their ‘reserve tire’ function in the face of weakness elsewhere, the strengthening of the debt capital markets has gone largely hand in hand with a tentative revival in both bank lending and IPOs.

“This suggests that the lack of confidence that has plagued the rest of the financial sector has been the main factor holding back bond issuers as well,” it said.

Nevertheless, NCB Capital notes that bank credit in the region may be on a mend. “Bank credit is showing belated signs of normalisation. The volume of syndicated loans in the GCC that had fallen from a peak $123bn in 2007 to $38bn in 2009 totalled $36bn in the first nine months of 2010,” NCB Capital reckoned.

However, it noted that in contrast with global dynamism in the Sukuk market, regional activity remained subdued. “The regional Sukuk markets disappointed in Q3. In the absence of high-profile offerings, the GCC Sukuk market in 3Q10 plunged below the disappointing opening quarter of the year,” it said.

“While the aggregate value of Sukuk issues fell sharply to $362mn, the actual number of issuances nonetheless held up with a gain from six to seven.”

The performance of GCC sukuk markets stands in marked contrast to remarkable dynamism globally.

“The global total primary Sukuk issuance continued its positive momentum, recording a 31 per cent quarter-on-quarter increase in value terms to $10.3bn and a 110 per cent gain in the number of issuances to 82. Malaysia was the most active market with an aggregate of 53 issues worth $9.2bn in 3Q10.”

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