Gulf investors’ confidence fuels developers’ bond sale

JEDDAH/DUBAI — GCC developers’ bond sales are on the rise, benefiting from investors’ confidence that Dubai will refinance financial obligations of its related entities, and as a refuge for assets amid Europe’s financial crisis.Average yields on bonds from the six-nation Gulf Cooperation Council have dropped 95 basis points this year to a record 4.12 percent on July 10, the HSBC/Nasdaq Dubai GCC Conventional US Dollar Bond Index show.

"The cost of issuance and the cost of debt have come down for a lot of these companies," Yaser Abu Shaba’an, director of asset management at Emirates Investment Bank in Dubai, said.

"The region as a whole is now being perceived as a better risk return prospect than Europe even on the sovereign level. This has been one of the best years for the region in terms of issuances just because the risk perception has improved for Middle East and Gulf assets, and there has been a search for yields globally," he said.

Economic growth in the Gulf, home to three-fifths of the world’s oil reserves, will reach 5.3 percent this year, according to International Monetary Fund (IMF) estimates in April.

That is above an expansion of 2 percent in the US and a projected contraction of 0.3 percent in the 17-country eurozone economies, the IMF said.

Gulf bonds returned 6.7 percent so far this year, the HSBC/Nasdaq index showed. By comparison, debt in the Middle East, which includes Lebanon and Jordan sovereign bonds, gained 5.7 percent, according to the HSBC/Nasdaq Dubai Middle East Conventional US Dollar Bond Index.

Borrowers from the GCC have sold $21 billion of bonds in the first six month of this year against $10.5 billion in the first half of last year and $8.6 billion in same period of 2010. Still, real estate companies in the Gulf remain vulnerable to volatility in global markets and downward swings in property prices.

The IMF will cut its estimate for global growth in 2012 from a 3.5 percent estimate in April on weakness in investment, jobs and manufacturing in Europe, the US, Brazil, India and China, IMF Managing Director Christine Lagarde said. Meanwhile, Saudi Arabia and the UAE were in the world’s top 10 countries for consumer confidence in the second quarter of 2012, the Nielsen Global Consumer Confidence Index report showed Monday.

Although Saudi Arabia’s score of 115 was down on its previous high, the Kingdom was still fourth in the world, behind Indonesia which led the Index.

The UAE’s score of 108 was three better than in the first quarter as the Gulf state was placed sixth in the global index.

Indonesia’s move to top spot in the survey was a further sign that the country, with its big domestic economy and an expanding middle class, is weathering the global slowdown better than some other emerging markets.

In Egypt, consumer sentiment leapt 6 points, pushing Egyptians into the top 10 most optimistic consumers globally. — SG/QJM