Bond sales in the Gulf sparked back to life last week, with Dubai’s Emaar Properties joining a growing pipeline of borrowers who may take issuance to a record this year.
Emaar hired banks including Standard Chartered, Emirates NBD and National Bank of Abu Dhabi to arrange investor meetings before a potential dollar-denominated sukuk sale. Dubai’s Emirates Islamic Bank reopened the market after the summer lull on August 30 by offering a fresh $250mn portion of its 2021 Islamic bond, receiving orders worth three times that figure. QNB and Sharjah Islamic Bank both came to market on August 31.
With sales announced from other borrowers including NBAD and Burgan Bank, and Saudi Arabia’s expected mega-deal, issuance from the six-nation Gulf Cooperation Council may now be poised to top the record $43.6bn sold in 2012. While about $39bn has been raised so far, sales slowed to a trickle since May as a traditional summer lull in investor activity was compounded by global market instability following the UK’s Brexit vote.
“There’s been limited primary market issuance over the last couple of months and pent-up demand should easily absorb the flurry of deals in the pipeline,” said Doug Bitcon, a fund manager at Rasmala in Dubai. “We expect strong local and international demand for Saudi and Kuwait Government issuance.”
After dropping for two months amid a slowdown in sales, bond spreads in the region climbed eight basis points this week, according to JPMorgan Chase & Co indexes. The decline in oil prices since mid-2014 has forced Gulf sovereigns to introduce austerity steps to curb budget deficits. Most governments are running down assets and issuing local currency debt, which has reduced domestic liquidity and pushed them to tap international investors for funds.
Bond and sukuk sales in the GCC, which includes the two biggest Arab economies of Saudi Arabia and the UAE, doubled this year as governments in Qatar, Abu Dhabi and Oman sold securities. “Corporate issuers will see good demand as there is a lack of supply from that space so the likes of Emaar will be absorbed easily,” said Chirag Doshi, the Doha-based senior vice president of investments at Qatar Insurance Co. “But financials will have to leave a generous spread to find demand.”