Dubai
JPMorgan Chase & Co. and Citigroup Inc, the biggest debt arrangers in the Middle East and North Africa, expect regional sales to slow for the rest of the year after sovereigns raised a record $37 billion in the first half.
“We have seen a significant amount of issuance early in the year and it’s not surprising that we are starting to see things slow down,” Hani Deaibes, JPMorgan’s regional head of debt-capital markets, said in an interview. “While we expect activity to pick up a bit later in the year, we don’t see a substantial pipeline at the moment.”
Sovereigns and companies in the region raised more than $55 billion in bonds in the first six months of 2017, making it the busiest first half in the region since Bloomberg started tracking data in 2006. Most of the sales were by governments tapping international investors to fill budget shortfalls brought on by the slump in crude prices. The biggest US bank displaced HSBC Holdings Plc as the top Gulf debt arranger last year and in the first half.
Citigroup, the region’s second-biggest arranger on bond sales, said that while this year is unlikely to beat 2016’s record deal volumes, it will be close to that level as governments and companies rush back to the market before the end of the year.
“The pipeline is looking quiet robust,” said Iman Abdul Khalek, head of MENA debt capital markets at Citigroup. “It’s been very quiet in the last month-and-a-half and I would say it will continue to be quiet till September. But the pipeline is there. We will continue to see sovereigns coming to do their funding. We will also see more corporates coming to the market before the end of the year.”
Bond sales from the region this year are likely to reach similar levels to last year when $79 billion was sold as long as oil prices remain low, JPMorgan’s Deaibes said.
Government deficits
JPMorgan has worked on some of this year’s biggest deals, including Saudi Arabia’s $9 billion debut Islamic bond and Kuwait’s $8 billion sovereign sale.
“If oil remains at this sort of level then we will continue to see governments active in the market and overall deal volumes largely sustained,” he said. “I don’t think we will go back to previous volumes of around $25 billion of deals until we see a material reduction in governments’ fiscal deficits.”
Saudi Arabia’s Finance Minister Mohammad Al Jadaan said in April the kingdom is likely to sell another international bond again later this year. It also plans to sell Islamic bonds locally this month, he said last week. Dubai Aerospace Enterprise may raise up to $2 billion from a bond.
“After the summer people will want to come back to the market and will want to move relatively fast if the market is conducive,” Deaibes said. “Banks and corporates are ready to be opportunistic if the window is there.”
