Greek debt crisis weighs on Gulf bond issuers

04 July 2011

Two bond issues delayed because of pricing concerns

Two companies from the UAE have put planned bond issues on hold as a result of a spike in the price caused by worries among investors about the Greek sovereign debt crisis.

Five-year US interest rate swaps spiked to 2.038 per cent on 4 July, after hitting a low for the year-to-date of 1.77 per cent on 27 June. Although rates have fallen slightly since, they are still elevated, making bond issuers reconsider plans to tap the markets.

Dubai’s Majid al-Futtaim Group (MAF) said in early July that it is putting its plans to issue a bond on hold because it felt pricing would be too high. Abu Dhabi’s Dolphin Energy has made a similar decision about a week earlier.

Sources close to the deals say the two had hoped that a decision on Greece’s sovereign debt would have been in place by now, allowing them a clearer passage thought the markets. However, international banks have still not settled the terms on which they will participate in the restructuring of the country’s sovereign debt.

Abu Dhabi’s Tourism Development and Investment Company (TDIC) is also meeting bond investors during early July, with a deal expected to be priced in mid-July. With the MAF and Dolphin issues on hold it remains unclear if TDIC will go ahead with its own deal now or wait for better market conditions.

Several issuers had been planning to issue bond before Ramadan starts on 1 August, which is expected to result in a slowdown in deal flow. In addition to TDIC, International Petroleum Investment Corporation (Ipic) is also said to be planning a new issue.

“I would be surprised if any other bond issues are done before the summer,” says one Dubai-based bond trader. “Investors had been exiting from deals to get ready for the new issuance in the pipeline, but we are now seeing them going back into the secondary market rather than wait for primary issuance.”

It is not just Greek debt worries that are weighing on new deals. Companies are worried that the market right now is not going to give good pricing on new deals. “The Greek issue has a role, but it is perhaps overdone,” says a Dubai based banker, who advises companies on bond issues. “There are a lot of factors at work in the bond markets that can make it just not that attractive to issue now if you can afford to wait.”

Issuers like Dolphin and MAF, who want to use the bond markets to refinance existing debt, are able to wait until conditions improve. Not everyone will have that option.

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