United Gulf Bank puts bond issue on hold

10 February 2010

Negative Kipco rating hits investor demand for deal

Bahrain’s United Gulf Bank (UGB) has put a planned bond issue on hold following poor investor uptake for the issue and after ratings agency Standard & Poor’s (S&P)warned it may downgrade the bank’s parent company rating.

On 10 February, S&P put its BBB+ rating for Kuwait Projects Company (Kipco) on negative outlook. Kipco holds a 95 per cent shareholding in UGB, and the ratings action has hit investor demand for the UGB deal.

Bankers close to the planned issue confirm the deal has now been put on hold.

At the same time, Saudi Arabian real estate firm Dar al-Arkan’s issue of an Islamic bond (sukuk), originally planned to be in the region of between $500m to $700m, also looks set to be dramatically reduced in size, if it goes ahead at all.

Bankers had been expecting final details of the Dar al-Arkan issue to be released by 11 February. At the time of writing, sources close to the deal say it could be cut to about $350m.

“Dar al-Arkan needs the cash more than UGB does, so it more likely to go ahead with the issue even if it is much smaller than originally planned,” says a bond trader.

Pricing on both issues had been expected to be a flat rate of about 10 to 11 per cent.

It had been hoped that the two issues would help the regional bond markets pick up some momentum after the announcement in November last year that Dubai World was seeking a standstill on about $22bn of its debts.

UGB and Dar al-Arkan were the first regional issuers to approach the bond market since then.

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