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Tue 1 Jun 2010 11:30 AM

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Qatar sets coupon for $1.4bn bond at 6.5%

8-year issues aim to help world's top natural gas exporter launch a local debt market.

Qatar sets coupon for $1.4bn bond at 6.5%
(Getty Images)

Qatar issued 10 billion riyals ($2.75 billion) in conventional and Islamic bonds with a 6.5 percent coupon to local banks on Tuesday, the Gulf's first domestic sovereign offering this year, a central bank source told Reuters.

The eight-year issues are aimed at helping Qatar - the world's top natural gas exporter - launch a local debt market, provide a new vehicle to pool excess liquidity in the banking sector and diversify its funding away from dollars. Until now, government debt issues have been predominantly U.S. dollar-denominated.

"We issued both, valid today," the source said, speaking on condition of anonymity. "The coupon is 6.5 percent for both."

Earlier on Tuesday, Finance Minister Youssef Kamal told reporters on the sidelines of a conference in Doha that he expected a coupon on the Islamic 5 billion-riyal side of the package to be set at 6.5 percent.

The issue is evenly split with five local conventional banks getting 1 billion riyal each with no bidding competition, while four Islamic banks share the rest.

The source said the Islamic part was a ijara, or rental-based sukuk. The coupon is paid semi-annually.

Ijara is a structure in which an Islamic bank buys an asset and leases it to a customer for an agreed rental fee instead of charging interest, which the religion forbids.

"It (the bond) is transferable within Qatar, but not externally," a banking source said.

The bonds are expected to be listed later this year on the Qatar Exchange, which still needs to set up a facility for debt trading.

Cash-rich Qatar issued $7 billion in dollar-denominated bonds in November, marking the largest sovereign debt issuance in the Arab Gulf last year, which attracted a reported order book of over $30 billion.

The country is rated 'AA-' by Standard & Poor's and 'Aa2' by Moody's. (Reuters)

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