Barclays urges businesses to exploit regional bond market

27 January 2010

Bonds will allow investors to raise debt and maintain growth locally

Middle East companies and governments should make more use of bonds to raise debt in order to maintain regional growth, a senior executive at UK bank Barclays says.

The use of local currency debt markets allows investors to cope with risks associated with fluctuating exchange rates and provides stable long-term yields for investors, said Alia Moubayed, senior economist at the Middle East and North Africa division of Barclays Capital, the investment arm of the UK bank, on 26 January.

Moubayed was speaking at a conference hosted by the Dubai International Financial Centre in Dubai.

Currently, local debt markets are negligible in size, but bonds have gained increasing importance since the global financial crisis of 2007-2009, which slashed the value of banks’ assets in the region, said Moubayed.

According to Barclays Capital research, bonds made up 10 per cent of the external financing structure of the Middle East, North African and south Asian banks in 2008. This increased to 28 per cent in the first half of 2009.

However, debt securities only accounted for a 5.6 per cent share of Middle East capital markets, according to a report by the Washington-headquartered International Monetary Fund in October 2009 .

Middle East capital markets were valued at $2.2 trillion in October 2009 and are dominated by bank assets which account for roughly 55 per cent of market share. Equities constitute about 30 per cent.

“Domestic capital markets are not yet well positioned to support financing the region’s ambitious growth plans,” said Moubayed. “Developing the local bond market is necessary to ensure less volatile, longer-term access to finance for the region.” 

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