Bonds will bring transparency in the region

19 October 2009

The value of bond issues in the Middle East so far this year is already more than double what it reached in 2008, and is well above the figures for 2006 and 2007. Next year looks likely to be even busier for debt markets

The sudden emergence of a flourishing -Middle East bond market follows years of calls for regional governments to start issuing sovereign bonds that can be used as the basis for pricing corporate debt. Bonds from the governments of Abu Dhabi, Qatar and Bahrain this year have proved to be the catalyst the market needed.

So far, though, only the strongest companies, with at least some government backing, have been able to access the bond markets. But there are signs that the debt markets could be opening up for more private companies while finance from the region’s battered banks remains a difficult proposition. Project bonds could also become a more prominent source of funding for infrastructure projects.

This will be good news for the development of the Middle East economy and for addressing some of the issues raised about the opaque nature of most businesses in the region, particularly in the wake of massive debt defaults in Saudi Arabia.

Accessing the bond markets typically means getting a credit rating, running international roadshows to meet investors face to face
and field questions from some of the world’s biggest investors.

This kind of scrutiny of financial performance and business plans is vital for a region more used to getting loans off the back of a family name, or an implied government guarantee. The disclosure of the sources of a company’s earnings is the only sure way of telling whether it can repay its debts.

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