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Local firms to dominate region's bond issuance

Investors to exploit tightening credit spreads

Gulf News

Dubai: More sovereign and top quality quasi-sovereign firms from Abu Dhabi, Dubai and Qatar are likely to issue debt before the end of 2010 as credit spreads tighten and investors regain confidence, a senior executive at the Royal Bank of Scotland (RBS) said.

"Sovereign and top quality quasi-sovereign names from Abu Dhabi, Qatar are likely to tap bond markets before the year end. Dubai is meeting investors this week and that could be a precursor of a deal from them," Hassan Mustafa, managing director and head of the debt syndicate of Central Eastern Europe Middle East and Africa (CEEMEA) at RBS, told Zawya Dow Jones recently.

Unique opportunity

"Benchmark yields remain at historic lows and with credit spreads tightening over the last 9-12 months, the market offers issuers a unique opportunity to lock in record low coupon levels," he said.

Mustafa added that there is an economic and pricing rationale to support new issuance and the bank expects prudent borrowers to utilise this to their advantage.

Royal Bank of Scotland Group Plc, the 84-per cent government-owned UK lender, was one of five banks underwriting Qatari Diar's $3.5 billion (Dh12.8 billion) bond offering in July, the largest this year.

RBS also managed bond sales for other high-rated firms like the National Bank of Abu Dhabi PJSC, Dolphin Energy Ltd and Qatar Telecom QSC.

"The underlying tone of the market remains supportive of new issuance," he said, despite lower volumes compared to last year.

Debt issuance in the region fell by 19 per cent to $20.5 billion in the first half of 2010, compared to last year, according to Dealogic. Middle East governments and companies raised $38.7 billion from sales of conventional and Islamic bonds in 2009.

Bond sales from the region almost froze late last year after Dubai World said in November it planned to restructure $23.5 billion of debt.

Saudi Arabia's Dar Al Arkan Real Estate Development Co broke the malaise when it sold a $450 million bond in February this year.

"Markets continue to offer very good execution conditions with low benchmark yields and credit spreads in a decent place for most of the likely issuers," Mustafa said, adding that the bank expects prudent borrowers to maintain a policy of diversification of sources of funding.