Bankers in the Middle East are expecting a wave of corporate debt issuance over the coming months as companies try to take advantage of appetite among investors for Middle East risk.
One source at a credit ratings agency says there could be as many as 10 new bond issues being planned, predominately sukuk (Islamic bond) issues.
Tightening liquidity conditions have been making it more difficult to get bank loans, making borrowers turn to alternatives, such as the bond markets. Another boon to the market was the $500m sukuk issue by Emirates Islamic Bank (EIB), a subsidiary of Emirates NBD, which was priced at 350 basis points above the benchmark mid-swap rate. That deal attracted about $1.5bn of orders from investors at was priced at about 100 basis points lower than existing sukuk from the Dubai government.
“There is huge demand for sukuk issues, and given that Emirates Islamic Bank was able to issue a sukuk 100 basis points inside Dubai sovereign debt, anyone willing to issue bonds will be looking at the sukuk market first,” says Okan Akin, emerging market corporate debt strategist at the UK’s Royal Bank of Scotland (RBS).
The spread on Middle East sukuk issues, a measure of the difference in yield between different securities, has generally been falling since the beginning of the year, according to the HSBC-Nasdaq Dubai Sukuk Index. That indicates that investors are becoming more bullish on the sukuk market. Figures from Bloomberg show that Gulf region sukuk sales were $5.7bn in the first six weeks of the year, higher than any previous quarter. Globally sukuk sales hit $20.2bn in January, an increase of 23 per cent on January 2011.
The figures were bouyed by the General Authority of Civil Aviation (Gaca), Saudi Arabia’s aviation market regulator, which issued a SR15bn sukuk guaranteed by the government in January. “The Gaca sukuk is clearly a statement of intent by the Saudi government that they want to stimulate the domestic market,” says one local banker. Last year, Saudi Aramco issued a sukuk to help finance the development of its Satorp oil refinery at Jubail, in another move seen as the government taking a strategic decision to develop the local capital market.
Other firms that have issued sukuk include the UAE’s Majid al-Futtaim, First Gulf Bank and Tamweel. Abu Dhabi government-owned Al Hilal Bank has appointed National Bank of Abu Dhabi, and the UK’s HSBC and Standard Chartered, to arrange a sukuk issue planned for later this year. Bankers say the queue of names planning to issue is growing. “There is a lot of interest in the sukuk market, especially as the conventional markets have been more volatile,” says the head of capital markets at one international bank in Dubai.