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Saturday, 21 October 2017

Building momentum

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Middle Eastern credits have filled the void left by CIS issuers, driven by an intensifying race between banks to land lucrative Gulf tickets, and by investors eager to access what they believe to be diversified, high quality assets. Although Dubai – usually a stalwart of the region – has disappointed, the slack has been picked up by others. Bakyt Azimkanov reports.

It has been a busy year for Middle Eastern bond markets. The region’s credits have printed 20 deals for US$23.34bn in 2009. Lebanon was the first to bring the new supply in 2009, followed by an offering from Israel, but it was the deals from Abu Dhabi and Qatar in April that shook the market into action. Those deals paved the way for more supply from the Arab Peninsula, with banks happy to oblige, amid fierce competition for market share.

Gulf issuers, including four sovereigns, tapped the US dollar, UAE dirham, Singapore dollar, Saudi riyal and Hong Kong dollar markets, in both traditional and Islamic deals.

Abu Dhabi dominated Gulf issuance, with 12 deals. Saudi Arabia brought three deals and Israel two, while Bahrain and Lebanon produced one each. But it was Qatar that emerged as the real darling of the region’s investors: Qatar Telecom brought the region’s first ever telecoms bond with a dual-tranche US$1.5bn bond 10bp through guidance and was nine times subscribed. Ras Laffan's triple-tranche US$2.23bn deal continued the trend, attracting the largest ever order book for a Gulf bond, at US$17.6bn. The pricing came between 80bp and 120bp through its pre-announcement outstanding curve, with final pricing causing a rally across the board in Qatari assets.

The bookrunner shuffle

All this activity has seen a transformation in the region’s bond issuance league tables relative to the same period in 2008, when 29 deals worth US$15.31bn were printed. Last year, StanChart topped spot table; this year, it stands in ninth position. Emirates NBD, Calyon, Bank of Abu Dhabi, Dubai Islamic Bank and Lehman Brothers are absent from the Top 10, in part thanks to the total disappearance of supply from Dubai.

Citigroup, HSBC and BNP Paribas maintain strong positions and currently take the top three spots, HSBC having made the biggest jump – from the ninth place in 2008 to the second this year. But the demise of some of the stronger players in this region has created a bookrunner vacuum that was filled by new names such as Goldman Sachs, Deutsche Bank, RBS and Samba Financial Group.

When Abu Dhabi and Qatar sold a combined US$6bn in new bonds in April, worries remained about exactly how much liquidity would be available. It was not a foregone conclusion that the market would have the appetite for two benchmark offerings in rapid sequence. However, the high quality of the credits, and the scarcity feature, attracted huge interest in both trades, setting the tone for the next six months.

The UAE capital priced a US$1.5bn 5.50% 2014s at 400bp over Treasuries, yielding 5.652%, while a US$1.5bn 6.75% 2019s came in at plus 420bp, yielding 6.856%. The following day Qatar came with a similar size, printing US$2bn 5.15% 2014s at plus 340bp, yielding 5.171%, and US$1bn 6.55% 2019s at 380bp above, yielding 6.594%.

Bahrain was the first Gulf sovereign of the year to issue sukuk in June, printing a successful US$750m 6.247% 2014 Sharia-compliant offering at 340bp over. Ras al-Khaimah followed up with another sukuk, its first greenback offering: a US$400m five-year issue pricing at 8%, equivalent to plus 560bp.

Kuwait, Oman and Saudi Arabia are thought to be in the pipeline, while one Double A-rated Gulf sovereign is said to be preparing a yen debut. This bond bonanza reflects a changing attitude among global investors: many are increasing their exposure to Middle Eastern risk, believing it to offer high quality and diversified assets.

Gulf corporate supply remains popular – with Americans in particular. Israel Electric Corporation was the first issuer of the year, but the floodgates were opened by Mubadala, which tapped a red hot market in April. Its maiden US$1.75bn benchmark priced in line with guidance.

Abu Dhabi Commercial Bank was first to come with international dirham-denominated paper this year, while the National Bank of Abu Dhabi printed the region’s first US dollar bank transaction of the year, before debuting in Hong Kong dollars. More deals from UAE's Tourism Development and Investment Company, Dolphin Energy and Abu Dhabi National Energy Company were well received, while TDIC is preparing an up to a US$1bn sukuk.

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