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Tue 7 Mar 2017 02:04 PM

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Kuwait could issue smaller debut bond as oil prices recover

Investors say Kuwait may now issue less than the $10bn announced by the Gulf state last year

Kuwait could issue smaller debut bond as oil prices recover

Kuwait's first public bond issue in the global market is set to price between Abu Dhabi government debt, long viewed as the gold standard in the Gulf, and Qatar, investors say.

Kuwait is issuing foreign debt because of low oil prices, which have slashed its export income. It has been slower than other Gulf states to cut wasteful spending and raise new revenues.

Its financial fundamentals are strong, however, due to its huge oil reserves, low cost of exploiting them and small population, analysts say. The International Monetary Fund projects Kuwait will be the only one of the six Gulf Cooperation Council States to run a fiscal surplus this year.

Zeina Rizk, director of fixed income asset management at Arqaam Capital, a regional investment bank, said Kuwait might need to pay a "first issue premium" for its debut bond, causing it to price between Abu Dhabi and Qatar.

But "given the better fundamentals, it is likely to trade in line with or even slightly inside Abu Dhabi," she added.

Kuwait has indicated it plans to issue five- and 10-year bonds.

Abu Dhabi's five-year bond maturing in May 2021 was yielding 2.45 percent on Tuesday, while its 10-year notes due in 2026 yielded 3.31 percent.

Qatar’s 2021 bonds are at 2.69 percent and its 2026 bonds, at 3.51 percent.

Kuwait said last year that the issue might be $10 billion, but some investors now think the amount may be less, due to a partial rebound in oil prices and because some in government oppose amassing foreign debt.

Max Wolman, senior portfolio manager at Aberdeen Asset Management, forecast emerging markets investors would provide heavy demand for the Kuwaiti bonds, causing them to trade somewhere between Abu Dhabi and Qatar.

Some investors have been expecting Kuwait to include a 30-year tranche in its issue, as Saudi Arabia and Oman did for their successful issues in recent months.

But although Kuwait is preparing a draft law to allow maturities of up to 30 years, an existing law limits its borrowing to maturities of up to 10 years, an IMF document showed.

One Dubai-based fund manager said Kuwait might present a “boring story, in a good way” when compared with Abu Dhabi.

“Kuwait has the advantage of being a sovereign over Abu Dhabi, which is an emirate, and the United Arab Emirates theoretically include more leveraged emirates like Dubai and more deficit-heavy Sharjah," the fund manager said.

"Kuwait is clean in that sense, and has no real contingent liabilities, which even Abu Dhabi has a lot of through government-related entities.”

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