Bond issuance in the Gulf is unlikely to extend the boom of the latest quarter, as Dubai World’s request for a standstill from its creditors has sapped market confidence, bankers say.
New issues of bonds reached US$38 billion (Dh139.57bn) last year, including record issuance in the fourth quarter, compared with $14bn in 2008 and $28bn in 2007. “If you extrapolate from the last quarter, we could see $60bn in issuance [this year], but that is probably optimistic,” said Andrew Dell, the HSBC regional managing director for global financing.
“The investor appetite and the volumes are there, and there is an increasing trend of volume and variety.” Mr Dell made his comments yesterday at the launch of the Gulf Bond and Sukuk Association in Dubai.
Such growth potential has not been reflected in the prices of bonds traded in the secondary market, which indicate the wariness of investors.
The yield of the HSBC/DIFX Sukuk US$ Bond Index has climbed to 7.01 per cent after falling as low as 5.57 per cent on November 25, before Dubai World said it was seeking a standstill agreement with lenders. Investors usually demand a higher rate of interest if they see a higher risk of default.
The news that one of Dubai’s key conglomerates was seeking a debt standstill rattled global investors and sapped confidence in regional debt markets.
Abdul Kadir Hussain, the chief executive at Mashreq Capital, said “markets here are not opening up as fast as in other regions”. Dubai Electricity and Water Authority last week delayed its $1.5bn bond issuance originally planned for the first quarter. It blamed market conditions. This contrasts sharply with the final three months of last year, when Gulf issuers raised a record $15bn in new debt, reported Dealogic, a data provider.
Dar Al Arkan, Saudi Arabia’s largest property developer, is preparing to issue a sukuk to refinance a $600 million three-year floating-rate note due in March of this year. On Sunday, the government of Bahrain said it planned to issue $1bn in 10-year bonds. Observers expect this to happen as early as March of this year.
