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Bond issues in Mena may exceed $30b next year

Infrastructure, ongoing projects drive demand

Gulf News

Dubai: Primary bond issues from the Middle East and North Africa (Mena) region is expected to exceed $30 billion (Dh110.1 billion) reported this year as governments and public sector entities need to finance infrastructure projects and refinance their maturing short-term debts, a senior banker at HSBC Holdings PLC (HBC) said yesterday.

"Primary bond issues from the Middle East and North Africa [Mena] region next year is expected to exceed the $30 billion level recorded last year. We expect the bond issue volumes from the region to surge due to higher demand for longer term funding for infrastructure and refinancing of short-term debt," said Andrew Dell, HSBC's head of debt capital markets for Mena told reporters.

The huge demand for public infrastructure and various ongoing projects is expected to drive the need for long-term debt financing and primary debt issuance in the region. While many regional projects that are at various stages of implementation requires funding, Dell said Qatar's winning bid to host the 2022 Soccer World Cup will further boost demand for long-term debt financing in the region.

HSBC, which topped the Mena league table in debt capital markets raised $10.38 billion from 38 bond/sukuk issues in 2010 said the regional debt markets are attracting strong international investor demand.

"There is a growing demand for regional bonds due to the improved confidence of international investors in the regional bond issues. Clearly the market is maturing and there is a substantial liquidity in the international markets to support the supply from the regional issuers," said Dell.

Limited liquidity

Huge refinancing requirements in the region combined with limited liquidity available in the bank financing (syndication market) are expected to drive up the supply of regional bonds. HSBC expects, sovereigns and governments relate entities to dominate the bond issuance from the region.

Qatar was the biggest source of issues this year, recording $8.5 billion of bonds, followed by Saudi Arabia at $6.57 billion and Dubai at $4.25 billion. Countries like Lebanon, Egypt and Morocco also returned to the market, while Jordan sold its debut $750 million bonds in 2010, according to HSBC data

Confidence boost

"Last year we saw significantly a large number of issues from sovereigns and government related entities. This trend is likely to continue next year. But we expect more corporate issuers to tap the market next year," he said.

The HSBC official said the recent regional sovereign and sovereign guaranteed issues have helped lift investor confidence in the regional markets.

"The Dubai sovereign issue last year helped to boost the confidence in the market. It did indeed change the weather in the market," Dell said. Going forward, HSBC expects growing number of Middle East-based sovereign and corporate issuers to raise funds in Malaysia through sukuk issues.