There’s more to it than you thinkJune 30, 2015 9:42
HSBC expects Mideast bond issues to pick up in H2
New issuers to boost MENA bond sales in H2.
August 4, 2010 10:59 by Reuters
UK bank HSBC expects a rise in bond issues from the Middle East in the second half of the year as borrowers take advantage of lower rates and prospects for a resolution to Dubai’s debt woes lift investor confidence, a senior banker said.
The bond market in the Gulf remained shut for months following indebted Dubai World’s debt standstill announcement in November.
But some regional issuers have successfully come to market this year, with four bond sales from the region in July.
According to SDC, a Thomson Reuters database, the Middle East has issued 16 international bonds this year for $16.7 billion, not including the $1.5 billion dual-tranche issue from the Republic of Egypt in April nor the recent $600 million offering from National Bank of Egypt last week.
“The breadth of issuers that are coming to market is increasing and we have seen a significant improvement in general market conditions, post what was happening in Dubai last year,” said Andrew Dell, head of debt capital markets for central and eastern Europe, Middle East and Africa at HSBC, in an interview.
“What we’re set for really is the execution of existing mandates of which there are quite a number,” Dell said.
“We’re going to see new borrowers coming to market, realising that at the levels of interest rates that are presently available, especially in fixed rate dollars, its very compelling to lock in longer term financing.”
Dollar-denominated bond sales are expected to dominate international issuance in the second half.
HSBC has been a mandated arranger on a number of bond issues from the region this year, including the sovereign issue from Egypt in April and Bahrain sovereign wealth fund Mumtalakat’s $750 million offering in June, the first Gulf deal in two months.
HSBC on Monday reported better-than-expected first half earnings with lower losses on personal and corporate loans amid broadly improving economic conditions.
Most recently, HSBC was one of several banks mandated on the $3.5 billion sale from Qatari Diar Finance, the real estate subsidiary of Qatar’s sovereign wealth fund. It was the first government guaranteed capital markets transaction in the region, and the largest this year.
The sale, to finance real estate firm Barwa, a unit of Qatari Diar, was backed with an explicit state guarantee from AA-rated Qatar, and attracted an order book of $23 billion.
“We’ve argued for a long time it’s a very good facilitation tool for financing within the region, so I’m glad it’s finally coming through,” Dell said.
“Qatari Diar and Barwa achieved longer tenors and tighter pricing than they could have on their own. Guarantees are a very good tool but you’ve got to use them in a smart way, you certainly don’t want to create a bunch of contingent liabilities just because you can.”
After Qatari Diar, a subsidiary of Abu Dhabi-based Waha Capital, printed a $1.5 billion bond issue carrying an unconditional and irrevocable government guarantee. More such issues from the region could follow, Dell said.
It is also expected that agreement on Dubai World’s $14.4 billion bank debt restructuring plan – currently being studied by all creditor banks – could be a trigger for investors to return to the Gulf but be more discerning about what credits they buy into.
“What happens in any market dislocation is people reassess the risks and they look in more detail at the nature of support and guarantees, and the documentation,” Dell said.
Speaking separately to Reuters Insider, Dell elaborated that in the United States, real money investors, and credit hedge funds are “very large, very liquid, and more willing to look at risk from the region.”
(Reporting by Rachna Uppal; Editing by Jason Neely)