Banks are preparing fresh bond issues as hopes rise for a positive debt restructuring deal at Dubai World and greater flows of capital into the region.
National Bank of Abu Dhabi (NBAD) will meet European investors this week to discuss a planned bond issue of more than US$500 million (Dh1.83 billion), while Mashreqbank may return to the bond market after shareholders approved an increase of its note programme to $5bn from $2bn. Saudi Arabia’s Banque Saudi Fransi and the state-owned utility Dubai Electricity and Water Authority (DEWA) are also preparing to offer bonds after difficult credit conditions forced both companies to delay their plans at the start of this year.
“The fixed-income markets want to really see a successful issue to come out,” said Helen Holmes, a fund manager at EIS Asset Management, a unit of Emirates NBD.
NBAD could become the first company to issue a bond after Dubai World’s November 25 debt standstill announcement dampened demand for local debt.
Since then, only the Saudi property company Dar Al Arkan has tapped the markets with a five-year, $450m sukuk, or Islamic bond, priced at 10.75 per cent. The initial plan was for an $850m issue.
Investor confidence has increased in recent weeks, however, amid hopes that the restructuring of Dubai World could be less painful for the creditor banks than initially feared. The state-owned conglomerate has been locked in talks with more than 90 creditors to agree on a restructuring proposal.
“We have seen a 180 per cent turnaround,” said Nish Popat, the head of fixed income at ING Investment Management. “Three weeks ago, nobody wanted to touch UAE debt. Now it looks like the [Dubai World] restructuring may be on a much more positive note.”
The new-found optimism follows reports late last week that Sheikh Hamdan bin Rashid, the Minister of Finance, pledged support for Dubai and that Dubai World’s creditor banks may fare better than had been thought.
Yields for Dubai debt have fallen significantly in recent weeks, making it more attractive for companies to borrow money using bonds. A Dubai Department of Finance Islamic bond due in 2014 yielded just under 10 per cent four weeks ago, but yield about 7.5 per cent now. The cost to insure against a Dubai default has fallen by about 30 per cent over the past month.
Banque Saudi Fransi is believed to be testing the waters for a bond issue initially planned for January. The lender was talking to Saudi investors at the weekend before heading to Asia and Europe, bankers say. DEWA is also reviving plans to issue $1.5bn of debt, delayed from the start of the year by difficult credit conditions.
Last week, its chief executive said he expected the issue to be completed by early April.
Bank of America Merrill Lynch, HSBC Holdings, Barclays Capital and NBAD are expected to manage the NBAD bond sale. The Abu Dhabi Government owns 70 per cent of the bank.
