Approval of Dubai World's $24.9bn debt plan restored investor confidence
Corporate bond markets in the Gulf Arab region are expected to recover in the coming months following last week's first sovereign bond issue by Dubai since its debt woes effectively shut regional markets, executives said.
Dubai last week issued a $1.25 billion bond with a yield of 6.7 percent for the five year tranche, which drew about $5 billion in subscriptions.
"In September, we have seen a material improvement in terms of prices, in terms of spreads coming down," Eric Swats, head of asset management at Rasmala Investment Bank, told a conference in Manama.
Last week's approval by creditors of Dubai World's $24.9 billion debt plan restored investor confidence, he said.
Dubai World's debt woes that emerged late last year and the sovereign debt crisis in Europe dampened Gulf capital markets for the first half of the year.
Swats said: "If you are sitting in a funding desk in Dubai I think you are quite happy with what you're paying to raise money. Despite what happened over the past two years ... the cost of funding is not too different."
Swats said his funds view sovereign issues by the Dubai Electricity and Water Authority (DEWA) and sovereign issues from the emirate as trading at attractive levels.
Mohieddine Kronfol, managing director at Dubai based Algebra Capital, told Reuters he expected bond issues from top energy producers Saudi Arabia and Qatar to lead the recovery. "In Saudi Arabia, there are more than 20 companies with over a billion dollar in bank debt on their books, almost all of them can go and issue $300-500 million paper," he said.
The Islamic Development Bank (IDB), Arab Petroleum Investments Corporation (APICORP), both based in Saudi Arabia, and Qatar Telecom have all set plans to launch bond issues.
Gulf Arab capital markets are in an early stage of their development with bonds markets lacking the depth to permit liquid secondary trading.
The small size of the insurance industry in the region and the relatively small number of pension funds have deprived the market of institutional investors that are important bond investors in more mature markets and whose long-term views balance capital markets during times of crisis.
Companies in the region have traditionally relied on bank loans for their funding needs, but executives said this is changing as regional banks have cut down lending due to higher capital requirements and high provisioning against bad loans.
Kronfol said: "We are beginning to see a lot of first-time borrowers as companies begin to think strategically about funding," adding investors were open to issuers from all sectors as long as they were sufficiently transparent.
In particular, the many family groups in the Gulf Arab region have been shut out of capital markets due to investor concerns over their corporate governance and reliability of disclosures.
"There would be a tremendous amount of work that would have to be done on them, but I think they would still get a reception, there are still some brilliant names in the region," said Anthony Mallis, chief executive of Bahrain based Securities and Investment Company (SICO). (Reuters)