Monday, 23 July 2018

Changing landscapes

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While 2009 was the year of jumbo record breaking deals, this year’s issuance is unlikely to match those figures. But issuance has been more evenly spread between the Gulf jurisdictions in 2010, and origination desks are confident the primary market will pick up. Bakyt Azimkanov reports.

Qatar emerged as the darling of the Middle Eastern sovereign debt markets last year. The deals from a small nation of less than two million people broke records, notched a few firsts and re-priced the whole existing credit curve for its credits.

The sovereign alone sold US$10bn of Eurobonds. Meanwhile, US$5.3bn was issued by Qatari entities. Among these was Ras Laffan’s 30-year deal, the largest emerging markets FIG offering from the Commercial Bank of Qatar and the Middle East’s first ever telecoms bond from Qatar Telecom.

Now it is a very different picture this year. At the start of the year origination desks had anticipated Middle Eastern issuance would total between US$30bn and US$35bn for 2010. With the current issuance rate, the final figure is expected to barely reach US$25bn, compared with 2009’s US$40bn.

Middle Eastern credits printed 23 deals for US$23.34bn by mid-September in 2009, compared with this year’s 19 bonds worth US$17.37bn in the same time frame. Citigroup, HSBC and BNP Paribas maintained top three spots at this stage last year. Fast forward 12 months and Barclays Capital, Goldman Sachs and Morgan Stanley had emerged as top three bookrunners.

This year was largely expected to be dominated by Saudi issuers. However, the Dar al-Arkan US$450m debut Eurobond, which was also the first 144a transaction from the Kingdom, remains the exception. It was the first deal from the Middle East in 2009 and failed to become a trail blazer as many had hoped for.

An eclectic mix

Despite Dar al-Arkan’s failure to raise its full US$500-750m target, Middle Eastern issuers are on course to diversify their funding pools. This year alone the region’s credits tapped the US dollar, Saudi riyal, Australian dollar, Malaysian ringgit, Emirati dirham, Qatari riyal, Singaporean dollar and Kuwaiti dinar markets. A euro-denominated deal is in the works from the Emirates.

“There is a healthy pipeline of deals coming through for the fourth quarter,” said Robert Whichello, co-head of global debt syndicate at BNP Paribas. “Issuance has been fairly light this year compared to 2009 but then we have seen swap rates drop by 100bp in just six months as well as massive spread compression.” Most of the bank’s clients were right to wait until now, he added.

By jurisdiction, in the first half of 2010, Israel, Bahrain and UAE have each issued four international bonds for US$4.74bn, US$3.15bn and US$2.17bn, respectively. Lebanon and Saudi Arabia have printed two papers each for US$1.40bn and US$1.1bn, while Jordan is expected to join the ranks of the region’s Eurobond issuers, as it prepares a long anticipated international debut.

There was only one international sukuk issuance from the Middle East to date: Dar al-Akran’s US$450m 11% five-year 144a deal. However, the void was filled by the issuers in Asia Pacific.

On the domestic front, the Saudi activity picked up remarkably in 2010 versus 2009 with a new regulation on housing set to open the doors for new financial products in future.

“The proposed Mortgage Law has the potential to unlock significant real estate development activity in the Kingdom. The capital requirements of such activity will make products, such as RMBS, very attractive to developers,” said Mohammed al-Sheikh, managing partner at Latham & Watkins in Riyadh.

In the international arena, a few credits emerged at the forefront of issuance. “Issuance from the GCC so far this year, with the exception of Bahrain, is significantly down from the levels of the past few years. The recent rally in spreads demonstrates the continued appetite for paper from the region and we anticipate that investors will look for new issuance from a range of borrowers to include sovereigns, SOEs and corporates,” said Spencer Maclean, syndicate official at Standard Chartered. Issuance should pick up before 2011, he added.

“The window of opportunity is now wide open. We expect a number of repeat borrowers and debut names to access markets before Eid al-Adha in mid-November,” said Whichello.

There remains a wall of cash out there and fund flows into real money accounts are at record highs. Much of that will be put to work in new issues over the next three months, predicted Whichello. “The technicals are extremely supportive for our issuer clients.”

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