Gulf bond sales drop 23% to $11.8b

Bond sales by issuers in the Gulf fell to a five-year low as debt crises in developed nations threaten a recovery in investor confidence after the Middle East's worst political turmoil in at least four decades.Offerings have slumped 23 per cent this year to $11.8 billion (Dh43.30) from a year earlier, data compiled by Bloomberg show. Majid Al Futtaim Group, Dolphin Energy Ltd and Tourism Development and Investment Co have put off sales since June. The extra yield borrowers from the Middle East must pay over US Treasuries surged 99 basis points this quarter to 431 on Aug-ust 10, the most since October 2009, according to indexes compiled by JPMorgan Chase & Co."As long as global markets remain fragile, it will be difficult for regional names to sell bonds internationally," Nick Stadtmiller, a fixed-income analyst at lender Emirates NBD PJSC, said in an e-mail on August 15. "Local bond issuers depend on international participation in a successful sale." Concern the US economy may be headed for recession spurred a Federal Reserve vow last week to keep benchmark interest rates at almost zero through mid-2013. The European Central Bank resumed buying euro-area government bonds this month as lawmakers failed to convince investors they could contain the region's debt crisis. In the Gulf, the gap between the region's debt yields and the London interbank offered rate reached 310 basis points, or 3.1 percentage point, on August 11, the widest since June 2010, the HSBC/Nasdaq Dubai GCC Conventional US Dollar Bond Index shows. The difference fell to 292 on August 15.The cost of insuring Dubai's bonds from default using five-year credit-default swaps jumped to the highest in four months on August 11, according to data provider CMA, after Standard & Poor's cut the US debt rating from the highest grade of AAA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should and government or company fail to adhere to its debt agreements. Protests in the Middle East, which have killed thousands in Libya, Syria and Yemen this year and toppled long-serving rulers in Tunisia and Egypt, raised the cost of borrowing for Arabian Gulf issuers to a 10-month high on March 18.The jump came three days after Bahrain's King Hamad Bin Eisa Al Khalifa imposed a state of emergency to end a month of unrest.The difference between the yield on Gulf bonds and Libor, which jumped to 289 basis points on March 17, fell to 217 on May 19, the lowest since July 2008. "There was a rather short window of opportunity to issue bonds this year," Emirates NBD's Stadtmiller said."Had the situation not evolved in terms of the Mideast crisis, we would have seen around five more issuers coming to the market at the beginning of this year," Abrar Hussain, the Manama, Bahrain-based head of debt capital markets for the Middle East at Credit Agricole CIB said in a phone interview on August 15.Fourteen borrowers tapped the market so far this year, compared with 15 in the same period of 2010.Now is an opportune time to sell debt, according to Tarek Elalaily, the London-based director of Middle Eastern and North African fixed-income sales at New York-based Cantor Fitzgerald LP. The average yield on Arabian Gulf debt is down 64 basis points so far this year to 4.64 per cent on August 15, according to the HSBC/Nasdaq Dubai index. Gulf states hold more than a third of the world's proven crude oil reserves, according to data compiled by Bloomberg.Regional issuers "should get involved and block out the noise," Elalaily said by e-mail on August 15."Gulf states' public finances are in order, and they have a low debt burden, with Dubai the exception." From / Gulf News