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22| pfi | Middle East Report 2009 Gulf bonds

Issuance race begins

he race between the A-list investment banks to land big-sum Gulf tickets has intensified as more borrowers in the region plan to access the international bond markets to finance ambitious growth projects. Lead managers are using various tactics from innovative bond structures to relationships to target the untapped investor base. About US$15bn of potential supply is expected from Abu Dhabi alone, while Qatari companies are planning to attract more than US$15bn through the sale of bonds. New issues from other Gulf states are likely to follow, Bahrain being one of them as it gears up to price its US$500m five-year sukuk this month. Then, one senior fund manager in New York warned, "investors may become engulfed by Gulf supply".

T Impressive start

As April began, on the first day, the Emirate of Abu Dhabi (Aa1/AA/AA) launched the then largest sovereign bond from the Gulf Co-operation Council when it priced its dual-tranche US$3bn in line with revised guidance. Abu Dhabi priced a US$1.5bn 5.50% five-year deal at 99.346, or 400bp over US Treasuries, down from the initial guid- ance of 425bp, yielding 5.652%, while a US$1.5bn 6.75% 10-year offering came in at Treasuries plus 420bp, below the previous price talk of 437.5bp, with a reoffer price of 99.242, yielding 6.856%. Citigroup, Deutsche Bank and JP Morgan acted as join bookrunners, while Abu Dhabi Commercial Bank and National Bank of Abu Dhabi came in as co-leads. These bonds are a part of the Emirate's US$10bn Global MTN programme. A day later, the State of Qatar (Aa2/AA–) followed with a similar size when it printed its increased US$2bn 5.15% five- year offering at 99.90, or Treasuries plus 340bp, below the initial guidance of 350bp, yielding 5.171% and a US$1bn 6.55% 10-year deal at 380bp, below the previous price talk of 387.5bp, with a reoffer price of 99.682, yielding 6.594%.

April alone saw two sov- ereigns and a corporate reopening the market for the Gulf borrowers in style. Their success clear- ly paves the way for more issuance from the region while banks continue

competing to capture mar- ket share. Bakyt

Azimkanov writes.

Barclays Capital, BNP Paribas and Goldman Sachs led the deal, while Qatar National Bank acted as co-lead. Unofficial guidance for the Qatar deal was heard at 330bp over Treasuries for the five-year deal and at Treas- uries plus 350bp for the 10-year offering. Then some bankers in the Gulf had been too optimistic, however, as they expected the Qatari five-year sovereign tranche to price in the high 200bps.

When the deals were announced, there were con- cerns about exactly how much liquidity would be avail- able to the sovereigns and whether the market would have enough appetite for two benchmark offerings in rapid sequence; the high quality of the credits and the scarcity feature attracted huge interest in both trades. However, the Emirati capital – whose debt to GDP ratio at the time was less than 1% – priced outside of lower-rated Qatar. Apart from the CDS difference, Qatari protection then being 80bp–100bp inside Abu Dhabi's, the Dubai fac- tor was named as one of the reasons for the pricing results. As the United Arab Emirates' capital, Abu Dhabi is obliged to rescue the former boom-sheikhdom Dubai in the case of it failing to pay its US$80bn debt, which, in turn, would move Abu Dhabi's debt to GDP ratio to 20%. Last, low commodity prices were playing against the petrochemical-driven Emirate despite its having stress- tested oil down to US$30m per barrel. Abu Dhabi is the home to the world’s largest sovereign wealth fund – Abu Dhabi Investment Authority – worth about US$875bn and contributing 90% to the UAE's budg- et. On the other hand, the world's largest liquefied nat- ural gas exporter, Qatar, has lower geopolitical risks in the region and its gas revenues are set to double, with the rarity factor along with stronger fundamentals playing their role in pricing. Towards the end of April, on the 29th, Mubadala Devel- opment Company (Aa2/AA/AA) tightly priced its maiden two-part US$1.75bn Reg S/144a benchmark. The invest-

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