Two bonds launched in September by Jordan and Tunisia and Lebanon's second Eurobond issue in July show a growing willingness among Arab states to raise funds on the world's capital markets. The region has so far been cautious in their approach to the international bond markets, but the success of these latest issues indicate a keen appetite for Middle East debt and could encourage other states to follow suit.

The $50 million floating rate note issued by Jordan's Telecommunications Corporation (TCC) was reported to be oversubscribed by the lead managers hours after being launched on 12 September. It is the first bond issued by a Jordanian corporation (see Jordan).

Tunisia's Y15,000 million ($150 million) samurai bond will be the country's fourth yen-denominated issue. It will bring the total capital raised by Tunis through samurai bonds to about Y85,000 million ($850 million). The country's previous issues have consistently been oversubscribed, and analysts expect similarly strong support for this latest issue which closes at the end of September (see Tunisia).

Strong response

These two issues follow Lebanon's second successful Eurobond launch on 10 July. The bond was fully subscribed within three hours, the Finance Ministry said. In 1994, the republic issued its first Eurobond, and a strong response then encouraged the government to increase the value of the bond to $400 million, compared with the original plan to raise only $300 million.

Both the Jordanian and Lebanese issues have included to reassure any hesitant investors. The coupon on the first Lebanese issue in 1994 was pitched deliberately high to raise confidence in Lebanon's return to the international market after the civil war. In addition, the two Republic of Lebanon Eurobonds benefited from strong support by nationals eager to invest in the reconstruction programme. The Jordanian issue has a World Bank guarantee on the principal repayments, although the interest payments carry no such backing.

But the strong response cannot only be attributed to these factors. The financial turmoil following the Mexican crisis has encouraged investors to broaden their portfolios and seek out new markets. Investors see the Middle East as ripe for attention with the growing need for private finance in the region and peace moves improving the prospects for stability.

International ratings agencies are beginning to position themselves in the region, an important precursor to developing a new issues market. Until recently the Middle East was served by only one institution, the Cyprus-based Capital Intelligence. However, Moody's Investors Service has now begun rating financial institutions in the region from its recently established Limassol office. These ratings will include some assessment of country risk. The London-based IBCA is also behind plans to set up a series of local offices.

The only Arab state to receive a sovereign rating until now is Tunisia, which was issued a BBB+ by the Japan Bond Research Institute. However, the Jordanian government says it is considering being rated, and analysts say the kingdom can expect its country rating to reach investment grade.

Rising trade

A further indication of international interest in Middle East paper, is the rising trade on the secondary debt market. This market mainly comprises paper issued after the restructuring of commercial loans in the 1980s. Jordanian Brady bonds are one of the more attractive investments, and offers

one of the most liquid markets (MEED 24:2:95).

The price of these bonds fell sharply at the beginning of 1995, as did the value of most Brady bonds after the Mexico debacle. Beginning the year at about $42, the value of Jordan's Brady par bonds fell to a low of about $34 in April. However, the price has now recovered and the bonds are trading at about $45. Analysts expect the value and the level of trading to continue to increase driven by the interest in new markets and improvements in Jordan's economic outlook. International investors it seems are ready and waiting for more Arab debt to enter the market.