Many have halted or postponed plans while waiting for lulls in market volatility (Getty)
Face the Middle East companies, who are waiting for a favorable opportunity to sell bondsome tough choices regarding when to tap into the market, a situation that has already contributed to an 80 percent drop in issuance volume in the region in the first half of the year.
some of my source Bonds in the Gulfwhich typically accounts for regarding 40 percent of bond sales in emerging markets, have pounced on windows of relative stability in the market to close deals.
But many have halted or postponed their plans, while waiting for lulls in the market volatility driven by the Ukraine war and clearer signals regarding the global economy.
This includes the Public Investment Fund, which is Sovereign Wealth Fund Saudi Arabia, which said last year that it plans to put green bonds on the market for the first time. The Saudi government also said it would issue green bonds, while Qatar said it might take advantage of the opportunity in the market. But no country has moved forward with those plans so far this year.
Potential issuers of bonds must choose between paying a new, higher premium now or dealing with higher interest rates in the future.
“So you’re kind of stuck in a dilemma. Should I issue bonds now and pay a new premium, or wait for a lower new premium, but with higher interest rates?” said one banker in the region.
In January, the Abu Dhabi National Oil Company, ADNOC, set up a new entity to issue debt bonds, but two bankers said the company would wait for better conditions to issue its first bond. ADNOC declined to comment.
Three bankers said others, such as the investor consortium led by EIG at Saudi Aramco, are actively monitoring the market and are waiting for a window to issue bonds.
The consortium led by EIG raised $2.5 billion in January, less than the $3.5-4.4 billion it had been looking for due to market volatility.
Two bankers said the consortium will now have to secure a $10.8 billion loan, over a longer time frame than the two or three deals originally planned.
A separate consortium led by BlackRock has bought a stake in Aramco’s gas pipeline network, with a $13.4 billion loan that will have to be refinanced via bonds.
The bankers said the two alliances might sell the bonds in parallel rather than wait for pipeline transactions to complete, and coordinate through Aramco to make sure their business does not conflict, because both deals carry Aramco’s risk. Aramco, EIG and BlackRock declined to comment.
Meanwhile, Egypt has everything to issue dollar-denominated sukuk, but significantly higher borrowing costs, along with other options, have delayed that, according to several sources familiar with the situation.
Egyptian Finance Minister Mohamed Maait said, in media interviews over the past two months, that the country is also considering issuing Chinese yuan-denominated bonds.
Two bankers indicated that Oman is also studying options to issue bonds, including the issuance of dollar-denominated sukuk. Oman’s Ministry of Finance did not respond to a request for comment.
“I think there’s a good mentality right now where you don’t want to miss a window,” the district banker said. “The smart move is to be ready and make sure you make the best of this window that is coming.”
A single window late last month allowed for a flurry of deals, including a $300m perpetual bond issued by Dubai’s Mashreq Bank. Qatar Insurance issued bonds worth 400 million dollars, and Majid Al Futtaim Group issued bonds worth 500 million dollars. Dar Al-Arkan Real Estate Development Company in Saudi Arabia issued sukuk worth $400 million.
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In the first half of the year, Gulf issuance volumes fell to $15.3 billion, according to Refinitiv data, with 35 bond deals closed compared to 95 deals the year before.
The number of deals in the Middle East, of which the Gulf region accounts for the bulk of the volume of issuances, reached 37 deals, down from 101, with the volumes of issuances declining by 80 percent.
“The premium for issuing new bonds is much higher than what they are used to,” the banker said.
The banker explained that the region was paying between zero and five basis points on the premium for the new bond issue, and now faces “between 10 to 15 basis points for the best credit… and closer to 50 basis points for the most difficult credits.”
A bond analyst said that the sharp decline in issuances from the region came despite the outperformance of Gulf bonds over the broader emerging market bonds, as they fell regarding 11 percent in the year to July 15, while emerging market bonds fell by regarding 18.5 percent.
Loan volumes in the Gulf fell by 31 percent and in the Middle East by 38 percent in the first half of the year, according to Refinitiv data, showing that bank debt has been more attractive to bond issuers because loan interest rates take longer to adjust to the market.
(Archyde.com)