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Will Qatar’s bond issue close the issuance window for the rest of the GCC?
As Qatar's $5 billion bond issue shows the Gulf can still tempt investors to part with cash, the rest of the region the mega-sale won't be the last this year.
December 3, 2011 12:48 by Reuters
Qatar’s jumbo $5 billion bond issue this week shows the Gulf’s top credits can still tempt investors to part with cash in crisis-hit global markets. But the region’s other potential borrowers will hope Qatar’s mega-sale does not close the market for more issues this year.
Qatar priced its first global bond since 2009 as a three-tranche deal on Tuesday; it was the year’s biggest issue from the region.
“The good news is that the market is able to get flows, and the flows are from international investors. Qatar is a benchmark name for global investors,” said Ahmed Talhaoui, head of asset management at Abu Dhabi-based Royal Capital.
“For instance, the biggest holder of Qatar 2030 Reg S Bonds is Invesco. Highly rated sovereign issues such as Qatar and Abu Dhabi — which had its (AA) rating reaffirmed by S&P this week — are in favour for international bond managers, and not only emerging market specialists.”
Abu Dhabi National Energy Co (TAQA), rated A and majority government-owned, may quickly follow Qatar. It concludes roadshows for a possible bond on Wednesday in the United States; market sources say TAQA could issue over $1 billion in any deal.
But this year’s issuance window threatens to close for other issuers waiting on the sidelines. Dubai’s largest lender Emirates NBD, Abu Dhabi Islamic lender Al Hilal Bank, Qatar’s Doha Bank and Dubai mall developer Majid Al Futtaim Holding are all planning bond sales. On Wednesday, Dubai Islamic Bank said it would conduct roadshows that might lead to a guaranteed Islamic bond (sukuk) issue by its unit Tamweel.
In some cases, the need to issue bonds will soon become pressing. The region faces massive refinancing needs next year, estimated at over $50 billion. Tapping the global bond market has become more important because the freezing up of the global syndicated loan market, a result of the euro zone debt crisis, is depriving firms of this fund-raising avenue.
But Qatar’s success — combined with the approach of the year-end, when investors tend to withdraw for book closings — may not necessarily be a positive sign for these issuers. Instead, investor fatigue may set in.
“With Qatar having printed a huge $5 billion deal, and additional supply from TAQA looking imminent, clearly there’s a risk of investor fatigue, especially in light of the time of year, hence making it more challenging for other issuers to squeeze in a deal before the year-end,” said Chavan Bhogaita, head of the markets strategy unit at National Bank of Abu Dhabi.
Estimates of orders for Qatar’s bond were near $10 billion, market sources said, smaller than the $20 billion-plus which Qatar attracted for its last sovereign issue of $7 billion of bonds in November 2009.
Qatar initially indicated it planned to raise a minimum of just $1.5 billion this week, and the relatively small order book may have been a reflection of this.
However, in the past five weeks, Gulf borrowers – including International Petroleum Investment Co (IPIC) and the Bahrain government — have issued a total of about $11 billion in bonds. Traders say the market could have trouble coping if issuers try to maintain such a pace.
“We are advising some of our pipeline to push to next year; we don’t see this year improving,” said a senior banker at a major international bank based in the region.
Also, Qatar offered generous pricing on the five-year tranche of its bond, implying other issuers might find it expensive if they rushed to market in the next few weeks.
“I think they had to raise interest in the issue with everything that is going on currently,” said one trader, referring to the volatility in global markets. (CONTINUED TO NEXT PAGE)
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