Bloomberg
Dubai
For the first time since 2009, the number of Gulf corporate bond sales at this stage of the year is zero.
Banks have been the only issuers of bonds in the six-nation Gulf Co-operation Council so far in 2015, with all but one from lenders based in the UAE, according to data compiled by Bloomberg. Total sales are down about 7.8% from this point last year, and more than 60% from the 2012 record, the data show.
Companies have contributed to the slump in issuance as they opt for loans from local banks flush with cash and after a decline in crude prices threatened economic growth in the GCC, which is home to about a third of the world’s proven oil reserves.
With a limited supply of new notes, investors have poured cash into the secondary market, driving yields in the region to near record lows.
Corporates “are getting cheap funding from the banks,” Doug Bitcon, a Dubai-based fund manager at Rasmala Investment Bank Ltd, said by phone on last Tuesday. “Banks recognise that down the line there’s going to be lower levels of liquidity available and they want to be ahead of the curve in terms of funding.”
First Gulf Bank, the UAE’s third-biggest bank by assets, raised $750mn from the sale of five-year dollar notes on Tuesday, according to two people familiar with the deal, who asked not to be identified because the information is private. The notes were priced to yield 100 basis points, or 1 percentage point, over the benchmark mid-swap rate, they said.
“The banking sector is raising bonds and lending to the companies,” Montasser Khelifi, a Dubai-based senior manager at Quantum Investment Bank Ltd, said by phone on Tuesday. “Now it’s difficult to find some sukuk or bonds that have significant upside because they’ve been trading for a long time. It’s always good to have a dynamic primary market.”
The average yield on bonds sold by Middle East issuers was at 4.598% on Tuesday, just off a record low of 4.566% on August 29, according to JPMorgan Chase & Co indexes.
The UAE’s two biggest banks, National Bank of Abu Dhabi and Emirates NBD, are among issuers so far this year. About $3.2bn of notes were sold through Tuesday. Last year, companies including Saudi Electricity Co and Kuwait Projects Co were among borrowers that raised about $3.5bn in the same period.
“In 2014, some of the issuers that had previously tapped the debt capital markets were refinancing via syndicated facilities or bilateral facilities,” Bitcon said. “Maybe if we see less liquidity in the banking sector, then we might see more issuance by the corporates.”
Standard & Poor’s said last week that deposit growth in some UAE banks would be “noticeably weaker” in the next two years due to a drop in government and public sector deposits after oil prices declined.
Brent crude has declined 43% in 12 months to $61.90 a barrel. Governments in the region rely on income from crude to help fund their budgets.
UAE banks’ ratio of loans to deposits, a measure of liquidity, improved to 98.2% in December from 99.7% a year earlier, according to central bank data. In neighbouring Saudi Arabia, the biggest Arab economy, the ratio improved to 86% in December from 86.8% a year earlier, according to data from the country’s regulator.
Investors are left waiting for more diverse issuance, Quantum’s Khelifi said. “We’re still hungry for diversification and names from other sectors,” he said. “There’s money to be invested.”