Low rates tempt Gulf bond issuers, but timing key
Dubai, August 25, 2011
Low US interest rates and a need for dollar funding will encourage borrowers in the Gulf to defy volatile global markets and issue bonds after a summer lull, as investors eye decent returns for relatively low risk, said experts.
Gulf bonds in recent weeks have benefited from "flight to stability" trades and strong regional bids on local bonds.
While developed economies face the risk of renewed recession, the energy-producing economies of the Gulf region are forecast to grow around 4 per cent this year, and Qatar is poised for a 16.7 per cent expansion due to its gas exports.
Analysts say demand is particularly strong for sovereign or state-linked issues from Qatar and Abu Dhabi.
Both states - rated AA - are seen as regional safe havens amid political upheaval in the wider Middle East, and offer attractive yields compared to bonds in other regions.
"I think with the expected pipeline of new issues in the region, and the current low rates' environment in the US, regional borrowers will still come to the market in the fall to take advantage to tap the available liquidity," said Adnan Haider, head of fixed income at Abu Dhabi Commercial Bank.
All Gulf currencies are pegged to the U.S. dollar except the Kuwaiti dinar , which is pegged to a basket of currencies.
So far this year bond issues by Abu Dhabi Investment funds Mubadala Development Co and International Petroleum Investment Co (IPIC) have been heavily oversubscribed.
In June, an Abu Dhabi debt official said the emirate was likely to issue an international bond in the next 6-12 months.
Qatar Islamic Bank aims to raise up to $1 billion via an Islamic bond this year, and several Gulf companies have sought approval for bond programmes this year, including Oman's Bank Muscat and Commercial Bank of Qatar .
Given limited primary issuance during Ramadan and summer holidays in Europe, secondary market activity is an indication of investor interest.
"Middle East markets have held up on the whole -- there have been ups and downs in Dubai names, but Qatar and Abu Dhabi have held up," said Haider.
Prices on sovereign and government-related bonds in Qatar and Abu Dhabi have continued to rise, some to historical highs. These bonds are also among the most liquid in the region.-Reuters