GCC bond issue slightly up in first quarter

Saudi bank sees good prospect for bond issue in the region

Bond issue in Gulf oil producers increased slightly in the first quarter of 2011 to nearly $20 billion and prospects for such activity remains good despite regional political upheavals, a key Saudi bank has said.
From around $19.5 billion in the fourth quarter of 2010, total bond issuance in the six-nation Gulf Cooperation Council (GCC) edged up to around $20 billion in the first quarter of 2011, National Commercial Bank (NCB) said in a study released this week.
“Not surprisingly in view of the political backdrop, the first quarter turned out to be a very uneven and volatile period for debt and sukuk issuers in the Gulf,” Saudi Arabia’s largest bank said.
But it noted that this “seeming resilience” was critically due to one issuer: Qatar Central Bank (QCB) on 17 January placed QR50bn (USD13.7 billion) worth of bonds and sukuk.
“In spite of the mixed progress of the regional bond and sukuk markets, near- to medium-term issuance activity is likely to remain fairly strong, not least due to substantial refinancing requirements in the coming years,” the study said.\
“This follows an estimated $85 billion of annual new debt issuance in the Gulf countries since 2007. Increasingly living up to their promise, the bond markets are estimated to have provided 40 per cent of the debt capital raised by GCC corporates in 2010. This was broadly comparable to a 49 per cent figure in 2009 but far ahead of 11 per cent in 2008 and 22 per cent in 2007.”
The study cited recent estimates by Moody’s that the refinancing requirements of regional corporations in the coming years total some $212 billion with rated names accounting for $145 billion.
“Roughly a fifth of the aggregate debt is due to mature in 2012. Other industry estimates broadly match this assessment with approximately $40 billion of GCC debt projected to mature in each of the coming five years. Most of this is made by UAE and Qatar issues.”
It thus appears “virtually certain” that regional issuers will once again seize opportunities offered by more favorable market conditions once the situation normalizes, NCB said.
Turning to sovereign bonds, the study said such issuances during the quarter effectively dried up partly because Bahrain – one of the most active regional sovereigns – saw a major disruption to regular market operations following the recent internal unrest.
The yield of Bahrain’s 5.5 per cent government bond maturing in 2020 peaked at 6.91 per cent during the unrest, it said.
Only the Central Bank of Bahrain continued with its regular short-term sukuk issuance for liquidity management purposes.
The six issues during the quarter totaled around $179.4 million in value. The only other government operation was the $13.7 billion issuance by Qatar Central Bank.
Bahrain returned to the market after the end of the quarter when its latest five-year BD200 million ($530.4 million) ijarah sukuk was listed on Bahrain Bourse on 26 April, according to NCB.
“The regional issuance ambitions are likely to be supported by improving market fundamentals,” it said.
“Dubai World’s $24.9 billion debt restructuring agreement in March was a major step in the right direction.
Dubai has further benefited from the April decision by Moody’s to upgrade the ports operator DP World to investment grade following a similar move the previous month by Fitch….the decision lowered the yield of DP World’s $1.5 billion sukuk due in 2017 by 47 basis points to 5.78 per cent.
Also the yield of the Government of Dubai’s 6.4 per cent sukuk due in 2014 declined to an all-time low of 5.15 per cent on 13 April.”
According to the study, contracting yields have become a region-wide trend in the “more stable political environment.” Overall sukuk yields fell to 4.93 per cent by mid-April, the lowest level since October 2005.
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