By fueling price gains and stoking speculation of more borrowers to come, Saudi Arabia’s record debut international bond sale is shifting the ground across Middle East debt markets.
In the wake of the kingdom’s $17.5 billion transaction that was completed yesterday, the bonds of Qatar, Bahrain and Dubai are also rallying. The offering is being hailed as a likely spur to other Saudi companies in coming weeks and months and is the biggest by an emerging-market nation.
Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said that the “success of the bond will open the gates for a lot more Saudi paper.” “Not only will the sovereign issuers tap the market, but also the banks and first time corporates will try to sell bonds.”
A region where governments and companies have been forced to turn to international capital markets to raise cash due to the collapse in crude oil prices and has eroded budgets, Wednesday’s sale is handing fresh impetus to the region. According to data compiled by Bloomberg, a record $66 billion this year was reached in sales from the six nations that comprise the Gulf Cooperation Council.
Qatar’s 2046 bonds have jumped, driving the yield 11 basis points lower sBottom of Form
ince Saudi Arabia issued price guidance for its securities on Tuesday. According to data compiled by Bloomberg, while those on Dubai’s 2043 debt have declined eight basis points, yields on Bahrain’s 2044 notes have fallen 35 basis points. The data show that the yield on Saudi Electricity Co.’s 2044 bonds has tumbled 45 basis points.
On the first day of trading, Saudi Arabia’s own bonds have gained. Helping sales from the region surpass the previous high of $43.6 billion in 2012, Qatar raised $9 billion in May, Oman $4.5 billion, Bahrain $2.6 billion and Abu Dhabi issued $5 billion in April, before the Saudi sale.
Saudi Arabia would be helped companies there to wean themselves off of bank loans, their traditional source of finance by increased issues. It is the biggest Arab economy. as oil’s plunge has sapped liquidity, pushing interbank interest rates to their highest in seven years, it will also help reduce strain on the banking system.
Since Saudi Arabia’s banks were flush with oil revenue, they have barely issued securities in international markets this decade. Compared with more than 2,500 from lenders in the United Arab Emirates, the lenders have only one dollar bond currently outstanding.
Mohieddine Kronfol, the chief investment officer of global sukuk and Mena fixed income at Franklin Templeton in Dubai, said in an e-mail that the new bonds will “help develop the kingdom’s debt markets by introducing a more sophisticated type of investor.”
“There are also positive ripple effects for GCC fixed income as well as more global investors take a closer and longer-term look at the region,” Kronfol added.
(Adapted from Bloomberg)
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