Gulf banks develop taste for bond issues

24 May 2002

In the aftermath of the $450 million floating-rate note issue staged by National Bank of Kuwait in February, growing numbers of GCC financial institutions are preparing for their debut bond issues.

The latest to issue a mandate is Dubai-based Emirates Bank International (EBI), which has appointed Deutsche Bankas the lead arranger of its forthcoming $1,000 million medium-term note (MTN) programme (MEED 5:4:02). 'The programme will be broken up into different tranches and the first, probably worth about $250 million, will be launched by the end of June,' says an EBI executive. 'Pricing and tenor will be fixed by the market. We are looking to diversify our investor base and will not be overly aggressive on pricing.'

Deutsche Bank has also recently been awarded, alongside Morgan Stanley Dean Witter, a mandate to manage the forthcoming $200 million-250 million bond issue by Kuwait-based Gulf Investment Corporation (MEED 17:5:02).

Also preparing for its debut bond issue is Bahrain-based Gulf International Bank (GIB). GIB has mandated JP Morgan Chase & Companyand HSBC Investment Bankto manage a proposed $200 million-300 million, five-year issue.

'What we are seeing is the birth of what is potentially a new and important market,' says an international banker active in the region. 'In recent years the regional bank market has been very liquid and FIs [financial institutions] seeking finance simply tapped the syndications market. The development of a bond market not only could open up new investor bases, but will also lead to the creation of a new asset class which should aid regional balance sheet management.'

In addition, bankers point to the additional relief bonds could, in the future, bring to asset/liability mismatches. 'Regional corporates and projects consistently seek long-tenor commercial borrowing, but most of the banks have surprisingly short-term liabilities and this limits their ability to extend too much 10-year-plus credit,' says a senior regional banker. 'At the moment, most of these bond and note issues are still in the three-to-five-year range, but if liquid regional bond markets develop, we will soon see 10-year, or longer, issues and this could be very important for the development of the regional financial sector.'

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