Gulf poised for strong growth in bond issues despite credit crunch

Dubai: Despite the liquidity crunch in the international markets, and rising cost of funds, Gulf-based companies are poised to raise more funds this year through bond issues, said Declan Hegarty, managing director, Global Markets Financing, HSBC.

GCC firms raised more than $46 billion in 2007 through bond issues - $28.39 billion through conventional bonds and $17.9 billion through sukuks. "In 2008, availability of funds will be the major concern for regional corporates than the cost of funds.

"With a number of economically sound mega projects in various stages of development, many regional firms tend to compare their cost of funds to return on equity while deciding on the economics of a bond issue," said Hegarty.

In the second half of 2007 a number of regional firms either cancelled or postponed their debt issues due to the international credit crunch and widening credit spreads.

Bond issues and syndicated borrowings from the region remained strong in the second half of last year although the subprime mortgage crisis in the US virtually dried up the syndicated lending in Europe and the US.

Healthy growth

HSBC expects healthy growth in issuance over the coming 12-18 months as companies seek to refinance debt and extend their maturity profiles to finance infrastructure developments and expansion.

A vast majority of issues in 2007 was driven by substantial infrastructure expansion activities, which themselves are being fuelled by strong economic activity and non-oil diversification.

HSBC said the chances of developing a market for bond issues denominated in regional currencies have increased thanks to the global credit squeeze,

"We are getting increasing number of enquiries on the possibility of raising bond issues denominated in regional currencies such as the Saudi riyal and the dirham from international entities," he said.

On the sukuk front too, Hegarty said there is huge interest from overseas issuers to tap into regional markets.

"Although there is a huge liquidity pool available in the sukuk market, regional investors are highly yield sensitive and thus many top-rated companies can't match their expectations," he said.