DUBAI: Bond issuance from the Gulf Arab region is set to surge next year on the back of heavy infrastructure spending and refinancing needs, while the Abu Dhabi sovereign may return to the market after an absence of nearly five years.
The region’s issuance of conventional bonds and sukuk fell to $28.97bn this year from $36.90bn in 2012, according to IFR, a Thomson Reuters unit.
That was partly because of jitters about the US Federal Reserve’s plans to cut its monetary stimulus, which widened bond spreads globally, and partly due to both Abu Dhabi and its government-related entities (GREs) staying away from the market.
Now the Fed has started cutting back and global markets are reacting calmly, however. Meanwhile, billions of dollars of Abu Dhabi-linked obligations are due in the next 12 months, and the emirate is expected to replace at least some with new paper.
“We think $40-45 billion could be possible next year as more non-government issuers come to the market and large sovereign refinancings boost the overall volumes,” said Klaus Froehlich, head of investment banking for the Middle East and North Africa at Morgan Stanley.
The Abu Dhabi sovereign, which has $1.5bn due to mature in April, has not issued debt publicly since its debut deal in 2009.
Factors behind its reluctance appear to include its substantial cash reserves, a long internal review of the borrowing practices of its GREs, and concern about fellow emirate Dubai piling up debt. These factors mean a new bond to replace the maturing obligation is not certain next year.
“There would be a lot of investor interest in Abu Dhabi sovereign paper,” said Chavan Bhogaita, executive director for credit and alternative investments at National Bank of Abu Dhabi .
“But the argument that they don’t need the money is quite powerful and I don’t think their position in this regard has changed in the last 12 months.”
Bankers have long promoted the benefits for local GREs and corporations of having a sovereign curve to price off, but large budget surpluses have made many Gulf governments reluctant to act upon this advice — only Qatar, Dubai and Bahrain are regular issuers.
However, this hasn’t stopped Abu Dhabi GREs, which enjoy strong ratings due to their state links, from issuing in the past, and some are expected to tap the market again in 2014.
Abu Dhabi National Energy Co (TAQA) — with a $1bn bond due in September — has already sent out an invitation to banks to pitch for a role on a 2014 debt issue, IFR reported this month.
Reuters
