Gulf credit markets report best returns in 12 months

Dubai: Bond markets internationally continued to rally (albeit at a slower pace), spurred by real money buying together with short covering and a shortage of supply. These factors led to credit markets posting their best returns in 12 months.

Banks continued to shore up their balance sheets, with Citigroup announcing an additional $3 billion common stock offering and Bank of America issuing $6 billion of debt.

The Fed cut its rate by 25 basis points, coupled with rhetoric suggesting a pause, and the change in US non-farm payrolls came in stronger than expected, declining only 20,000 in April versus a consensus expected decline of 75,000.

Spreads reaction was muted, as the path of least resistance continues with a tightening bias, with any selling being easily absorbed by the market. The HSBC/DIFX Sukuk and GCC Aggregate Indices (www.hsbcdifxindices.com) posted strong gains during April (both tightened around 40 points) in line with global credit markets, and further buoyed by strong earnings announcements.

Financials outperformed other sectors last week (HSBC/DIFX Senior and Subordinated Financials tightened 10 points and 20 points respectively).

UAE companies

Abu Dhabi National Energy Company (Taqa) reported a 520 per cent increase in first quarter 2008 earnings to Dh397 million, Dubai Holding posted a 2007 full year net income surging 82 per cent to Dh13.9 billion, and Emirates airline announced an financial year 2007 increase of 61 per cent to Dh5 billion ($1.4 billion).

In the financials sector, earnings for the first quarter of 2008 were also reported, where Emirates NBD announced a net income increase of 37 per cent to Dh1.196 billion, mashreq posted a first quarter 2008 bottom line of Dh465.3 million (an increase of 4.6 per cent).

Arab Banking Corporation stated a loss of $587 million on the back of $599 million provisions on $737 million CDO holdings and SIVs (the structures that have been at the midst of the credit crises).

Despite the loss, ABC's announcement was positive for the credit, as this was coupled with the announcement of a $1 billion rights issue to shore up its balance sheet.

ABCORP senior and subordinated paper ended the week tighter by 30 basis points and 60 basis points respectively on the back of the news and better markets.

Dirham-denominated issues continued to dominate in terms of trading volumes, with a new Nakheel two-year Dh3.6 billion Sukuk Al Ijara priced and launched at 100 (6MEIBOR +225 points).

Following a lacklustre first day of trading when it closed 99.90/100.05, Friday saw the issue rally to close 100.10/100.25. In addition, Sabic has received approval from the Capital Markets Authority to issue up to five billion Saudi riyals ($1.3 billion) of sukuk.

- HSBC Dubai Fixed Income Trading