Gulf bond hopefuls wait in the wings after first-half plunge in volumes

FE Team | Published: July 21, 2022 23:52:31

DUBAI, July 21 (Reuters): Middle East companies waiting for a favourable window to sell bonds face some tough choices in terms of when to tap the market, a situation that has already contributed to an 80 per cent plunge in issuance volumes in the region in the first half.
Some issuers in the Gulf, which typically makes up some 40 per cent of emerging market bond sales, have pounced on windows of relative market stability to get deals done.
But many have shelved or delayed plans while they wait for lulls in market volatility driven by the Ukraine war and for clearer signals on the global economy.
That includes Saudi Arabia's sovereign wealth fund PIF, which said last year it planned to debut in the market with green bonds. read more The Saudi government had also said it would issue green bonds while Qatar said it might tap the market opportunistically.
Potential issuers have to choose between paying the higher new issuance premiums now or cope with higher interest rates down the line.
"So you're kind of stuck in a conundrum," one debt banker in the region said. "Should I issue now and pay up the new issue premium or wait for lower new issue premium but high rates."
In January, Abu Dhabi oil group ADNOC set up a new debt-issuing entity, but two bankers said the company will wait for better conditions to issue its first bonds.
Others, like an EIG-led consortium of investors in Saudi Aramco's oil pipeline network, are actively monitoring the market and waiting for a window to issue, three bankers said.
The EIG-led consortium raised $2.5 billion in January, shy of the $3.5-4.4 billion sought due to choppy markets.
It will now have to take out a $10.8 billion loan over a longer timeline than the two or three deals originally planned, two of the bankers said.
A separate consortium, led by BlackRock, had bought a stake in Aramco's gas pipelines network, backed by a $13.4 billion loan that will need to be refinanced via bonds.
The bankers said the two consortia could sell bonds in parallel rather than wait for the oil pipeline transactions to complete, coordinating via Aramco to ensure they do not take away demand from one another as both deals carry Aramco risk.
Aramco, EIG and BlackRock declined to comment.
Meanwhile, Egypt has everything in place to issue dollar-denominated sukuk but significantly higher borrowing costs, and other options, have put that on ice, several sources with knowledge of the situation said.
Egypt's finance minister, in media interviews in the last two months, said the country was also considering issuing bonds denominated in Chinese yuan.
Oman is also exploring bond options, including issuing dollar Islamic bonds or sukuk, two bankers said. Oman's finance ministry did not respond to a request for comment.
"I think there's a good mindset now where you don't want to miss a window," the debt banker in the region said. "And the smart move is to be ready and make sure you make best use of this window that's going to come."
One window late last month allowed a flurry of deals, including perpetual notes of $300 million by Dubai's Mashreqbank, $400 million by Qatar Insurance and $500 million by retail operator Majid Al Futtaim. Saudi developer Dar Al Arkan issued $400 million in sukuk.
In the first half of the year, Gulf issuance volumes dropped to $15.3 billion, based on Refinitiv data, with 35 bond deals compared with 95 a year earlier.
The wider Middle East, where the Gulf makes up the bulk of issues, had 37 deals, down from 101, with volumes down 80 per cent.