JEDDAH - Gulf bond issuers are likely to tap US investors for a more diverse funding base, despite the fallout from Dubai’s debt troubles, as demand for high rating emerging market debt rises, bankers in Dubai said on Monday.
There has been an increase in Gulf Arab corporate and quasi sovereign issuers opting for 144a types of issues, which are regulated under the US securities commission allowing US investors to buy into the issue.
Speaking at the launch of the Gulf Bond and Sukuk Association in Dubai, Andrew Dell, managing director, Global Financing, HSBC, said: “As a trend we saw more 144a issuance in the US in 2009, and the issuance was hugely successful.”
He added: “These issues firmly established the region in the mind of the US onshore investor.”
Debt issuance in the Gulf Arab region reached about $15 billion in the last quarter of 2009 alone, a mix of sovereign, quasi sovereign, and corporate issues, having picked up substantially in the third quarter.
A shock restructuring announcement from state owned Dubai World on Nov 25 rattled global equity markets and sparked concern about the attractiveness of Gulf debt in the immediate aftermath.
Earlier this week, two regional issuers indicated their intention to issue 144a bonds, with roadshows planned in the United States.
Saudi real estate company Dar al Arkan is currently on a roadshow for a potential dollar denominated Sukuk, and Bahrain said it will issue a $1 billion sovereign bond with a 10-year maturity, targeting mainly US investors.
Giambattista Atzeni, vice president and business manager for the Middle East, BNY Mellon, said: “144a issuance requires extra disclosure so ... will need to be put in place if issuers want a public offering in the US.”
He added: “New transactions are going to be put in place with an extra level of due diligence, and that’s a sign of the maturity of the regional bond market.”
Atzeni also said that there is a growing appetite in the United States for Islamic bonds, opening up another asset class to US portfolio managers.
In November, Commercial Bank of Qatar came to the market with a dual tranche $1.6 billion 144a issue, and the Gulf state raised $7 billion in a sovereign issue in 144a/Reg S format, also in the same month.
As the regional bond market matures and focuses on US investors, a natural outcome is likely to be longer maturities, which analysts say will help stabilize the market.
Ratings agency Moody’s said in a recent report that prospects for longer maturity debt on high quality credit, over shorter maturity ones, would be a key factor driving the region’s debt market development. - Reuters