UAE- Why we should be thankful for GCC banks' bond issues

Date

11/17/2015 4:04:10 PM

(MENAFN- Khaleej Times)

If it weren't for sales by banks bond issuance in the Gulf region would have slowed to a trickle.

In a year set to be the slowest for new offerings since 2011 lenders already account for more than 70 percent of all issues in the six-nation GCC while other corporate entities are vanishing. The gap in sales between the two has never been wider.

"The decline in oil prices has made things difficult and corporates have started getting more conservative in the spending plans" said Abdul Kadir Hussain the chief executive officer at Mashreq Capital DIFC in Dubai. "Now we are in the middle of a repricing and to some extent corporates have missed the best window to issue."

Debt sales have slumped as sliding oil prices curb the outlook for economic growth in the oil-rich region while borrowing costs have climbed to the highest level in two years on prospects for higher US interest rates.

Still banks are taking advantage of the dearth in corporate offerings boosting sales by 39 percent to $16.5 billion the best year since at least 2003 before the Federal Reserve raises rates and as deposit growth slows.

Bank issuers

International Bank of Qatar is holding meetings with fixed-income investors this month before a potential sale while Commercial Bank of Dubai and National Bank of Oman are among banks that have already raised money from bonds in November.

Offerings from companies in the GCCwhich includes the two biggest Arab economies of Saudi Arabia and the UAE dropped 69 per cent to $5.2 billion this year through Monday according to data compiled by Bloomberg. Overall bond issuance declined 27 per cent to $23.3 billion.

"There's less corporate refinancing that has needed to get done this year" said Andy Cairns the head of debt origination and distribution at National Bank of Abu Dhabi the UAE's biggest bank."Many corporates took advantage" of abundant bank liquidity amid high oil prices in 2013 and 2014 to "pre-fund upcoming maturities at cheaper pricing" he said.

Volatility in bond markets for much of 2015 caused by China's slowing economic growth and expectations that the US Federal Reserve will raise interest rates contributed to some companies staying away and preferring the loan market. Syndicated lending in the GCC increased 26 per cent to $62.1 billion.

Average bond yields in the GCC climbed 83 basis points from this year's low in February to 4.86 per cent on Friday according to JPMorgan Chase indexes.

"Liquidity pressure is increasingly pronounced across the region with many banks reporting significant outflows of deposits" Cairns said. "This squeeze in regional bank liquidity will push corporate borrowers back into the public debt markets and I expect a pick-upin bond sukuk and syndicated loan volumes in 2016." - Bloomberg

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