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Will Qatar’s bond issue close the issuance window for the rest of the GCC?

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

He noted that the five-year tranche of Qatar’s new bond was priced at 225 basis points over U.S. Treasuries. Qatar’s previously issued five-year bond maturing in 2015 is trading at 135 bps over; assuming the two years’ difference in maturity is worth 50 bps, Qatar paid a premium of about 40 bps for this week’s five-year issue, he estimated.

The 10-year tranche, priced at 262.5 bps over, offered much less value, only about 12.5 bps, he said.

Globally, the primary market tends to be practically closed from mid-December until after Christmas and the New Year, as investors go through book-closing periods.

In normal times, issuing at this time of year would be risky because a quiet secondary market might leave new bonds with reduced trading support. Given events in the euro zone, that risk looks unusually big this year.

“We had four to five new issues all come at once in the last quarter of 2010 and it ground the secondary market to a halt as most clients…had several names to choose from, so they decided to conduct further due diligence before buying,” said a Dubai-based trader.

Issuance decisions are being complicated, however, by the debate on whether the euro zone crisis will get better or worse in coming weeks. If Europe can come up with a convincing package of steps this month, it makes sense to wait to issue bonds until January, when market conditions should be better.

This week the euro zone adopted detailed plans to insure the first 20-30 percent of new bond issues for countries with funding difficulties and to create co-investment funds for foreign investors in euro zone government bonds; both schemes are expected to be operational by January.

But the general feeling in European markets is that these measures are too little, too late to rescue the euro zone. Much more radical steps may have to be taken, and since there is no guarantee of these, the crisis could well worsen — meaning it could be wise to rush to market with bond issues now.

“The circumstances this year are totally different. Chances are it will cost twice as much to raise next year, as several European countries and the UK could officially enter recession,” the Dubai trader said.

Also, the recent trend in Gulf credit default swap prices is not encouraging for issuers who want to wait; Qatar’s five-year CDS have risen by about 30 basis points since the start of this month and at 126 bps, are now back near the two-year high hit in October.
“There are no indicators at the moment which assure of better market conditions next year,” said a regional banker. (By Mala Pancholia and Rachna Uppal)

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