Gulf firms face $6.5bn bond refinancing

10 October 2008
Almost $3bn worth of bonds are due to mature in the first half of 2009, with a further $3.5bn in the second.

Gulf institutions have $6.5bn worth of bonds due to mature in 2009 that are likely to need refinancing at far higher rates, according to bankers.

This will significantly increase the risks asso-ciated with the companies’ growth plans.

Almost $3bn worth of bonds are due to mature in the first half of the year alone, with $3.5bn to follow in the second half.

The UAE’s Emirates NBD and Mashreqbank both have two capital markets instruments due to expire in early 2009 that were priced well below current market levels.

“It will be a real issue for those institutions with bonds that mature in the next 12 months because refinancing them will take place in a very difficult market,” says the Dubai-based head of fixed income products at one international bank.

“The only thing to do is run for cover,” says the head of capital markets at another international bank in Dubai.

“The capital markets are completely shut at the moment and a recovery seems a long way off.”

Mashreqbank has a total of $600m in capital market debt that is due to mature by February 2009, at an interest rate of 55 basis points over the London interbank-offered rate (Libor), while Emirates NBD has $662m worth of bonds issued by Emirates Bank that are due to mature in the same timeframe.

The average spread on GCC corporate bonds, according to the HSBC/DIFX index, is now more than 357 basis points over Libor, compared with less than 80 basis points over Libor throughout 2006 and early 2007.

Until recently, many GCC companies had accessed the local currency loan markets to get cheaper funding than they could from international capital markets.

However, the impact of the credit crunch has meant that even this market has almost closed.

Companies are faced with a limited range of options to refinance their existing debts once they mature.

“The options will depend on the cash resources companies have to repay bonds out of their own cash flow,” says one Bahrain-based banker.

“[If these are insufficient] they will have to arrange bilateral loans directly with banks that they have relationships with.

“Either way, they will have to start paying more for their debt and this could hit their appetite for expansion outside their established markets.”

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