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UAE leads GCC debt market in 2009
posted on 08/11/2009
 The debt market in Gulf oil producers rebounded by a staggering 64 per cent in the first nine months of 2009 and the UAE emerged as the leader in the issuance of conventional bonds, according to a Saudi investment fund.
New issuances during the first nine months of this year touched US$36.9 billion (Dh135.4bn), including nearly US$32.1bn in conventional bonds, said NCB Capital, an offshoot of the National Commercial Bank, the largest Saudi bank.
"The gloom surrounding the GCC debt markets during the last quarter of 2008 and the first quarter of this year has made way to increased activity this year," NCB Capital said in its weekly bulletin.
"The 128 per cent rise is in stark contrast to the 25 per cent fall recorded in 2008."
The report showed that the sukuk market has been lacklustre, primarily due to a fall in issuances in the UAE, whose share in total GCC sukuk issuances slumped from 63 per cent in 2008 to a mere nine per cent this year.
The region as a whole has experienced a 44 per cent fall in overall sukuk issuances until end of September despite the landmark US$1.86bn sukuk issue by the giant Saudi Electric Company.
"However, improving economic fundamentals, coupled with reviving asset markets, are expected to lead to a rise in sukuk issuance in the last quarter. This is welcome news against the backdrop of a constrained bank credit and a moribund IPO market in the region," NCB Capital said.
Its figures showed the debt market revival in the six-nation Gulf Cooperation Council (GCC) has been led by sovereign issues by the UAE and Qatar, which accounted for 64 per cent and 21 per cent respectively of the total conventional issuances in the region in the first three quarters of 2009.
While the UAE figure shot up by an annualised 236 per cent to US$20.5bn by end of September, Qatari sovereign conventional issuances reached US$6.7bn from a total absence of such issues in 2007 and 2008.
In the UAE, Abu Dhabi's US$3bn issue came in April, while Dubai sold US$10bn of five-year bonds to the UAE Central Bank in February.
"The sovereign issues in turn set the stage for government-linked businesses to follow suit. The result has been a return to debt markets for funding by energy companies, banks, and utilities," the report said.
"Abu Dhabi was the first to test investor sentiment towards new issues in 2009 when on April 8 it came out with a total issue of US$3bn, part of an intended tranche of US$10bn. The combination of US$1.5bn five-year and 10-year bonds were priced 400bps and 420bps respectively above comparable the US Treasury Securities and were oversubscribed by 2.3 times."
The report noted that Abu Dhabi's current issue comes almost two years after its inaugural US$1bn benchmark issue in August 2007.
Qatar was responsible for the largest single sovereign issue of the year — a US$2bn five-year bond priced to yield a fixed rate of 5.15 per cent. A further US$1bn was raised in 10-year bonds.
"The total tranche was oversubscribed by about eight times. In addition to conventional sovereign issues by Abu Dhabi and Qatar, the northern UAE emirate of Ras Al Khaimah is marketing the second tranche of its US$2bn sukuk, the first of which was issued in March 2008," the report said.
"While Abu Dhabi's new debt is expected to go towards funding US$300bn worth of infrastructure projects in the emirate over the next five years, the Qatari government is likely to use its receipts for general expenditure and contingency funding for government-linked entities."
The report said that low hydrocarbon prices, especially over the latter half of 2008 and early 2009, have dented the revenues of GCC countries, which rely heavily on volatile crude export earnings.
"Following years of no new borrowing and actual debt repayments, declining energy revenue combined with the need to boost local economies through fiscal measures have now prompted regional governments to turn to the debt markets."
It noted that although spending requirements have been a factor prompting Abu Dhabi and Qatar to raise debt, the sovereign issues appear to have provided a major stimulus to the regional corporate markets as well.
"The creation of benchmarks and attractive issuance opportunities have provided especially government-linked corporates with a chance to strengthen their financial health and fund expansion."
In the UAE, US$7.5bn worth of conventional debt was raised in the second and third quarters of 2009 by corporates, almost all of them from Abu Dhabi (Mubadala, Taqa, Aldar, Dolphin and NBAD). Over the same period, a total of US$3.7bn was raised by Qatari entities (Qtel and Ras Laffan).
"In sharp contrast to 2007-2008, issuances of corporate conventional bonds in 2009 have surpassed sukuk issuances. Conventional corporate issuances in the region this year reached almost US$11.7bn by end-3Q09, as against US$5.3bn for the whole of 2008, a rise of 120 per cent," it said. – Emirates Business 24|7
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