Institutional borrowers turn to bond markets over banks

23 October 2009

Region’s governments and companies have issued debt worth $31bn this year

Middle East institutions have issued bonds worth $31bn so far this year, more than in any of the past three years, as companies and governments turn to debt markets rather than banks to raise finance.

Bond issues from Middle East institutions raised $26bn in both 2006 and 2007, and just $14bn
in 2008.

In contrast, regional borrowers issued $9.5bn worth of bonds in the third quarter of this year, following the $12.4bn raised through bonds in the second quarter.

Dubai-based bankers say the markets slowed down during Ramadan and the summer months.

According to figures from Dealogic, a UK-based data provider, regional companies issued nearly $3bn worth of debt in the first two weeks of October. This included a $1bn sukuk (Islamic bond) issue by Abu Dhabi’s Tourism & Development Investment Company, the largest bond issue so far this month.

“Investors have demonstrated that appetite is there [for further issues],” says Nabil Maaloul, chief executive officer and chairman of the UAE’s Gulf Bank.

Maaloul says bonds make up a smaller portion of overall corporate funding in the Middle East than in other emerging markets.

“It is impossible to know how much debt issuance might be done next year, but we expect the market to continue to accelerate as it has over the past few months,” says Jan Plantagie, managing director at ratings agency Standard & Poor’s. “There could also be a shift towards more local-currency issuance.”

Governments in the region have played a key role in kick-starting the bond markets this year, with the Abu Dhabi and Qatar governments each issuing a $3bn sovereign bond in March.

Developing a market in local-currency bonds, rather than dollar or euro-denominated debt, gives countries more control over their debt. For dollar-pegged currencies, governments would only find local-currency debt easier to manage if they dropped the dollar peg.

“It is important to have a market for local-currency bonds, as it gives a government an additional tool and allows it to keep control of its currency,” says Nasser al-Saidi, chief economist at the Dubai International Financial Centre.

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