The evolution of regional debt capital markets is still in its infancy, but the first three quarters of this year have seen sufficient deal flow, both in terms of volume and variety, to suggest that the point of critical mass may be reached in the not-too-distant future. As the table on page 24shows, the primary market for both dollar-denominated and local currency issuance is picking up speed: more than $4,000 million-worth of paper has been issued since the start of the year. Financial institutions (FIs) have led the way, with some $1,300 million-worth of paper pumped out over the last eight months, compared with $425 million in the whole of 2003.

In addition to the FI paper, a growing number of regional corporates have moved to raise finance in this manner, among them Dubai-based carrier Emirates and Emaar Properties. Project bonds – often promised but rarely seen since the seminal Ras Laffan Liquefied Natural Gas Company (RasGas) issuance in 1997 – are also making a comeback. Aluminium Bahrain placed $200 million as part of its multi-tranche financing package last year and RasGas came to market again this spring. The nascent sukuk market – which can loosely be seen as the Islamic equivalent of bonds – has also surged forward with sovereign issues from Bahrain and Qatar paving the way for parastatals such as Dubai’s Department of Civil Aviation (DCA) and corporate debutants such as Abu Dhabi’s National Central Cooling Company (Tabreed). The message is clear: equity and bank loans are no longer the only sources of finance. Bonds, long a theoretical option for the raising of finance, are fast becoming a practical alternative.

However, as the flurry of recent deals has demonstrated, there is more than a single route to market, and there is more than one market being accessed. ‘The most important shift we have seen this year, compared to the deals done back in 2002, is we are now seeing some real diversification,’ says David Moleshead, director of investment banking at HSBC. Some of the early transactions were heavily sold into the GCC banking sector, often to the same players that had previously participated in syndicated loans to the same institution. ‘We’ve seen this year, with the Emirates Bank [International – EBI] issue, and with the deals from Bank Muscat and Emirates, international investors from Asia and Europe picking up significant portions,’ says Moleshead.

The focus of some deals on diversification is important. Perhaps the one with the highest profile was the $665 million, six-year paper issued by RasGas in March. Although it had some predecessors – in Qatar’s sovereign issues and the $1,200 million project bond issued by RasGas way back in 1997 – this deal was exceptional for its focus on US institutional investors. And it got a spectacular reception. Commitments in excess of $2,500 million were received as a feeding frenzy for the combination of Qatar’s strong credit story and access to liquefied natural gas (LNG) exposure kicked off. Some 79 per cent of the bonds placed went to US investors and another 11 per cent to Europeans.

The benefits of Doha’s strategy were reinforced in August by the extraordinary response to the preliminary information memorandum (PIM) from Qatar Liquefied Gas Company II (Qatargas II) for its proposed commercial borrowing. International and regional banks formed a lo