Dubai:
JP Morgan, which advised the Abu Dhabi government on its $10 billion dollar bond, said investor appetite remains robust for Gulf bonds, as they are rated like a G7 country, still providing higher yields.
Abu Dhabi along with France, which is a G7 country, is rated AA by Standard and Poors. In terms of returns on the bonds, Abu Dhabi offered 65 basis points over and above US treasury for its $10 billion dollar bond issued on Tuesday.
“Investor appetite is broad, transcending the emerging market investor base to include a Global Investment Grade lender community, attracted by the combination of ultra-high credit quality offering a little more return than is available for comparably rated sovereigns in the G7,” Nick Darrant, executive director at JP Morgan told Gulf News over email.
That is why the $10 billion bond issued by the Abu Dhabi government was oversubscribed three times, and were issued at a tighter pricing.
“The size of the demand makes a lot of sense to us: the issuer has a very strong balance sheet and the economy is one of the strongest in the region. Thus while the yields offered on the bonds are modest, strong investor demand is clearly present,” Koon Chow, Emerging Markets Macro and FX strategist at UBP told Gulf News.
Consensus
“There is now a consensus among Middle East sovereigns that international capital markets provide a unique source of liquidity in terms of depth, tenor and cost-effectiveness. Dollar debt markets are an essential tool for the region in an environment of low oil prices and low interest rates,” Darrant said.
Emirates NBD expects the second half to match the bond issues done in the first half of this year, which was at a record $43 billion.
“It is better to offer bonds before the rate hike because you get a cheaper all in cost, especially since credit spreads are also tight. I think Oman is probably the only other GCC name I expect before year end,” said Abdul Kadir Hussain, Head of Fixed Income Asset Management at Arqaam Capital.
Emirates NBD expects $3-$10 billion more bond issues between now and December. On a year-to-date basis, the GCC has issued dollar bonds worth $75 billion, a record of sorts, compared to $72 billion in 2016.
“There has been a structural shift in terms of both supply and demand, meaning that the Middle Eastern sovereigns are likely to view capital markets as a regular funding tool which fits well with an ever-growing desire from investors for diversification and liquidity of risk,” Darrant said.
Most of the countries in the Gulf have been depending on capital markets to raise debt as prices of oil, from where these countries derive majority of its revenues, has been slashed more than 50 per cent compared to three years ago.
