Slump in bank lending to boost Gulf bonds - SICO

Gulf companies are forced to turn to fixed income markets as tighter capital at regional banks is drying up bank credit, their traditional funding source, the chief executive of Securities & Investment Co (SICO) said.

Fixed income markets in the region are in an early stage of their development and lack the liquidity needed for secondary trading. Companies in the region have traditionally relied on bank loans with maturities of up to seven years for funding.

In an interview with Reuters, Anthony Mallis said: "Corporates will have to think a bit more originally about how to source themselves."

Central banks in the region are watching capital levels at banks very closely after many of them had to book provisions against bad loans during the crisis, further dampening lending.

He added: "The kind of access (regional banks) used to have to the foreign interbank market has substantially contracted."

The regional market for initial public offerings (IPOs), another source of funding during the region's five year oil boom that ended in 2008, has also not yet recovered.

Mallis said investors in the region are increasingly turning to the bond markets after both regional equities and real estate markets were hammered during the financial crisis.

"We're quite welcoming to Gulf credits and I think many people are thinking very much along the same lines," he said, adding that about half of the portfolio of SICO investment bank is currently invested in fixed-income.

Dubai last week issues a $1.25 billion bond which drew $5 billion in subscriptions.

He said: "Also the retail investors in the region ... their appetite for equities is not what it used to be, previously they had 100 percent equities, now it's a bit more balanced."

Mallis said there was a lot of investor interest for the many quasi sovereign or state backed companies of the region, in particular from energy producers Qatar and Saudi Arabia.

Qatar Islamic Bank launched a $750 million Islamic bond on Sept 30, and Qatar Telecom mandates six banks for a US dollar benchmark bond. (Reuters)