02 June 2011
MENA Bond Panorama - May at a Glance
The prospect of economic stagnation hovering on the horizon in the second quarter took its toll on the MENA bonds market, writes Joey Geadah, Research Associate at Zawya.
The Middle East and North Africa bonds firmament was somnolent as economic stagnation imposed its shadow on the region in the second quarter. Regulatory initiatives were the most recordable stats during May, while bond announcements and issuance were minimal.
Some nations, such as Oman and Saudi Arabia, called time out in May; others, such as Syria, pushed through the uproar and bond debutant Palestine made a momentous appearance.
Egyptian Manipulation
After April's move by Commercial International Bank (CIB), the Egyptian government chose to float bonds worth EGP5 billion to reimburse bonds owed by the New Urban Communities Authority (NUCA). The issuance of EGP2.5 billion worth of bonds in April was placed on the table, but there was an unexpected change in game play. National Bank of Egypt, HSBC, CIB and Banque Misr, who are the chief lenders in the deal, are leading discussions in order to expand the term from 13 months to three years.
Egypt is leaning towards international markets for the first time after the unrest earlier in the year. Finance Minister Sami Radwan plans to draw on a five-year Eurobond worth USD1 billion in order to finance the budget deficit. It will be backed by US guaranteed sovereign notes, but Egypt might still be obliged to pay more to borrow abroad.
Syria Dyslexia
Bounded by the latest uprisings, Syria's central bank is trying to resume monetary reform to meet protesters' demands for autonomy. The initial issuance of Syrian treasury bills is a first step towards building a domestic bond market.
Unfortunately, auctions were delayed due to the situation engulfing the country. The continuing unrest has left a question mark on the value of the Syrian pound, forcing the Central Bank of Syria to curb its foreign-currency policy.
In a nation where privatized banks are 60% owned overseas, the banking sector, which plays a vital role in Damascus' economic life, could be in jeopardy, rendering a dyslexic scene possible in the near future.
Rookie Makes Debut
On May 10, the Palestine Development and Investment Company, or PADICO, gave its homeland something to cheer about. Palestine's first corporate bond was brought to life. The issuance may draw new boundaries and have influential dimensions in Palestine, by giving the opportunity for the private sector to diversify its financing options.
The bond is worth USD70 million with a five-year tenor. It carries an annual fixed interest rate of 5% for the first 30 months, and a variable annual interest between 5% and 6.5% for the remaining 30 months. The bond will be privately placed and will not be listed or traded on the Palestine Stock Exchange.
"We are taking the long view on things and hope to raise money through our corporate bonds to finance additional long-term investments; that is our vision and that is our strategy for Palestine," said PADICO chairman Munib Masri.
Game On In Lebanon
With no cabinet formation on the horizon, and being relatively undisturbed by uprisings, Lebanon remains immune, showing its unique approach towards the latest updates. Lebanon's caretaker Finance Minister Raya El Hassan acknowledged the fact that the nation could refinance a USD1 billion bond that matured on May 18, 2011. Astonishingly, it was oversubscribed 2.3 times, despite the fact that the ministry barely needed USD 1 billion, and only this amount was accepted.
It was divided into two tranches, the first USD650 million maturing in 2019 with a 6% coupon rate, and the second worth of USD350 million maturing in 2022 with a coupon rate of 6.575%. Fransabank, Byblos Bank and HSBC were chosen to lead the new bond.
Subscribers are likely to be Lebanese banks, which are cash-rich and needs investment options. Nevertheless, the consecutive governments in Lebanon were constantly warned by the IMF that oversubscription of the Eurobonds is not sufficient to solve the fiscal deficit dilemma. It should be accompanied by the reduction of spending and increasing revenues.
This latest rollover confirms once again the belief which investors have in Lebanon's economy regardless of the nonexistence of a government and the lasting political dispute.
Utopian Jordan?
Jordan is focusing on preventing any further deterioration in its fiscal deficit, and on forming a solid government that can respond to the regional turmoil.
Jordanian Minister of Finance Mohammad Abu Hammour portrayed the five-year bond issuance of USD750 million in November 2010 as an overall gain to the economy since it saved the treasury millions of dollars. If the government had issued the bond in the present climate, he said, it would have had to pay a higher coupon rate.
The global rating agencies have downgraded the credit ratings of several MENA nations, and Jordan's local currency bond was demoted from Baa3 to Ba2 in February.
Qatar On The Radar
The Qatari bourse said it will introduce government/sovereign bonds as part of its overall plan to create a bond trading platform. Corporate bonds are next on the list. There are no limitations on bond trading by foreign investors, but issuers could restrict investors by setting conditions.
"With bond being a new trading instrument on Qatar Exchange, there is a need to hold seminars and knowledge sharing sessions," said Doha Bank chief executive R. Seetharaman. Moreover, setting benchmarks for bonds is vital, he said.
The Qatar Central Bank will issue QAR2 billion worth of treasury bills to make the local banking sector (domestic lenders) capable of managing their liquidity. However, the date of issuance remains unknown.
The GCC witnessed issuance of approximately USD20 billion worth of bonds in the first quarter, with the government of Qatar having the biggest chunk with USD13.7 billion. The biggest Qatari depositor is the government, and its injection activity is expanding as gas production and oil prices mount. Providing ongoing long-term opportunities for investments might soon payoff, making Qatar one of the driving forces of the GCC bond firmament.
Late Kuwait
Just as May 2011 was winding down, Kuwait's National Real Estate Company (NREC) opted to issue bonds with a minimum of five years tenor, to finance its major projects. NREC is holding talks with advisers concerning the probability of making the bonds convertible into shares. The issue size is yet to be disclosed.
UAE Shines
The Abu Dhabi government-owned Mubadala said it will only consider project bonds which are more liquid to refinance debt, and no more corporate bonds will be issued this year after April's USD1.5 billion bond.
Aabar Investments, also from Abu Dhabi, said it will launch an unsecured exchangeable bond of USD1.25 billion convertible into shares of Daimler. Proceeds of the offering ought to be used for general corporate purposes. The bond will be paid semi-annually with a 4% coupon rate.
The Abu Dhabi Securities Exchange, or ADX, resurrected a bond-listing plan, with deputy chief executive Rashid Al Baloushi saying the regulatory framework is ready. UAE companies usually choose London or elsewhere to list their bonds, luring foreign buyers. UAE's sovereign bond is another possible listing for the ADX.
Dubai-based airline Emirates mandated Deutsche Bank, Emirates NBD, HSBC Holdings and Morgan Stanley as lead managers on a dollar-denominated bond issue, which is related to the 21 aircraft due for delivery in 2012 and 172 thereafter. The carrier closed the bond on the first day of June.
The UAE federal government stated that it will not issue a bond before the start of 2012. According to officials in the ministry of finance, policy covering a federal bond is waiting for approval. This will pave the way for the nation's first federal government bond.
Some emirates such as Abu Dhabi, Ras Al Khaimah and Dubai have already sold debt overseas, unlike the federal government. The public debt law awaits signatures from each of the rulers of the seven emirates, in which currently the levels of indebtedness are disproportionate.
There is a pipeline of prospective deals; it's just matter of timing. Regional stimulus bundles ought to be seen in the context of reassuring foreign investors. As public spending is intensifying, bond issuance is increasing to fund the massive projects. Creating a transparent and accountable environment for bond investment will be key to growth in the sector.
Click here for Mena's Bond Panorama - April at a Glance
Joey Geadah
Research Associate- Bonds
joeyg@zawya.com
© Zawya 2011
MENA Bond Panorama - May at a Glance
The prospect of economic stagnation hovering on the horizon in the second quarter took its toll on the MENA bonds market, writes Joey Geadah, Research Associate at Zawya.
The Middle East and North Africa bonds firmament was somnolent as economic stagnation imposed its shadow on the region in the second quarter. Regulatory initiatives were the most recordable stats during May, while bond announcements and issuance were minimal.
Some nations, such as Oman and Saudi Arabia, called time out in May; others, such as Syria, pushed through the uproar and bond debutant Palestine made a momentous appearance.
Egyptian Manipulation
After April's move by Commercial International Bank (CIB), the Egyptian government chose to float bonds worth EGP5 billion to reimburse bonds owed by the New Urban Communities Authority (NUCA). The issuance of EGP2.5 billion worth of bonds in April was placed on the table, but there was an unexpected change in game play. National Bank of Egypt, HSBC, CIB and Banque Misr, who are the chief lenders in the deal, are leading discussions in order to expand the term from 13 months to three years.
Egypt is leaning towards international markets for the first time after the unrest earlier in the year. Finance Minister Sami Radwan plans to draw on a five-year Eurobond worth USD1 billion in order to finance the budget deficit. It will be backed by US guaranteed sovereign notes, but Egypt might still be obliged to pay more to borrow abroad.
Syria Dyslexia
Bounded by the latest uprisings, Syria's central bank is trying to resume monetary reform to meet protesters' demands for autonomy. The initial issuance of Syrian treasury bills is a first step towards building a domestic bond market.
Unfortunately, auctions were delayed due to the situation engulfing the country. The continuing unrest has left a question mark on the value of the Syrian pound, forcing the Central Bank of Syria to curb its foreign-currency policy.
In a nation where privatized banks are 60% owned overseas, the banking sector, which plays a vital role in Damascus' economic life, could be in jeopardy, rendering a dyslexic scene possible in the near future.
Rookie Makes Debut
On May 10, the Palestine Development and Investment Company, or PADICO, gave its homeland something to cheer about. Palestine's first corporate bond was brought to life. The issuance may draw new boundaries and have influential dimensions in Palestine, by giving the opportunity for the private sector to diversify its financing options.
The bond is worth USD70 million with a five-year tenor. It carries an annual fixed interest rate of 5% for the first 30 months, and a variable annual interest between 5% and 6.5% for the remaining 30 months. The bond will be privately placed and will not be listed or traded on the Palestine Stock Exchange.
"We are taking the long view on things and hope to raise money through our corporate bonds to finance additional long-term investments; that is our vision and that is our strategy for Palestine," said PADICO chairman Munib Masri.
Game On In Lebanon
With no cabinet formation on the horizon, and being relatively undisturbed by uprisings, Lebanon remains immune, showing its unique approach towards the latest updates. Lebanon's caretaker Finance Minister Raya El Hassan acknowledged the fact that the nation could refinance a USD1 billion bond that matured on May 18, 2011. Astonishingly, it was oversubscribed 2.3 times, despite the fact that the ministry barely needed USD 1 billion, and only this amount was accepted.
It was divided into two tranches, the first USD650 million maturing in 2019 with a 6% coupon rate, and the second worth of USD350 million maturing in 2022 with a coupon rate of 6.575%. Fransabank, Byblos Bank and HSBC were chosen to lead the new bond.
Subscribers are likely to be Lebanese banks, which are cash-rich and needs investment options. Nevertheless, the consecutive governments in Lebanon were constantly warned by the IMF that oversubscription of the Eurobonds is not sufficient to solve the fiscal deficit dilemma. It should be accompanied by the reduction of spending and increasing revenues.
This latest rollover confirms once again the belief which investors have in Lebanon's economy regardless of the nonexistence of a government and the lasting political dispute.
Utopian Jordan?
Jordan is focusing on preventing any further deterioration in its fiscal deficit, and on forming a solid government that can respond to the regional turmoil.
Jordanian Minister of Finance Mohammad Abu Hammour portrayed the five-year bond issuance of USD750 million in November 2010 as an overall gain to the economy since it saved the treasury millions of dollars. If the government had issued the bond in the present climate, he said, it would have had to pay a higher coupon rate.
The global rating agencies have downgraded the credit ratings of several MENA nations, and Jordan's local currency bond was demoted from Baa3 to Ba2 in February.
Qatar On The Radar
The Qatari bourse said it will introduce government/sovereign bonds as part of its overall plan to create a bond trading platform. Corporate bonds are next on the list. There are no limitations on bond trading by foreign investors, but issuers could restrict investors by setting conditions.
"With bond being a new trading instrument on Qatar Exchange, there is a need to hold seminars and knowledge sharing sessions," said Doha Bank chief executive R. Seetharaman. Moreover, setting benchmarks for bonds is vital, he said.
The Qatar Central Bank will issue QAR2 billion worth of treasury bills to make the local banking sector (domestic lenders) capable of managing their liquidity. However, the date of issuance remains unknown.
The GCC witnessed issuance of approximately USD20 billion worth of bonds in the first quarter, with the government of Qatar having the biggest chunk with USD13.7 billion. The biggest Qatari depositor is the government, and its injection activity is expanding as gas production and oil prices mount. Providing ongoing long-term opportunities for investments might soon payoff, making Qatar one of the driving forces of the GCC bond firmament.
Late Kuwait
Just as May 2011 was winding down, Kuwait's National Real Estate Company (NREC) opted to issue bonds with a minimum of five years tenor, to finance its major projects. NREC is holding talks with advisers concerning the probability of making the bonds convertible into shares. The issue size is yet to be disclosed.
UAE Shines
The Abu Dhabi government-owned Mubadala said it will only consider project bonds which are more liquid to refinance debt, and no more corporate bonds will be issued this year after April's USD1.5 billion bond.
Aabar Investments, also from Abu Dhabi, said it will launch an unsecured exchangeable bond of USD1.25 billion convertible into shares of Daimler. Proceeds of the offering ought to be used for general corporate purposes. The bond will be paid semi-annually with a 4% coupon rate.
The Abu Dhabi Securities Exchange, or ADX, resurrected a bond-listing plan, with deputy chief executive Rashid Al Baloushi saying the regulatory framework is ready. UAE companies usually choose London or elsewhere to list their bonds, luring foreign buyers. UAE's sovereign bond is another possible listing for the ADX.
Dubai-based airline Emirates mandated Deutsche Bank, Emirates NBD, HSBC Holdings and Morgan Stanley as lead managers on a dollar-denominated bond issue, which is related to the 21 aircraft due for delivery in 2012 and 172 thereafter. The carrier closed the bond on the first day of June.
The UAE federal government stated that it will not issue a bond before the start of 2012. According to officials in the ministry of finance, policy covering a federal bond is waiting for approval. This will pave the way for the nation's first federal government bond.
Some emirates such as Abu Dhabi, Ras Al Khaimah and Dubai have already sold debt overseas, unlike the federal government. The public debt law awaits signatures from each of the rulers of the seven emirates, in which currently the levels of indebtedness are disproportionate.
There is a pipeline of prospective deals; it's just matter of timing. Regional stimulus bundles ought to be seen in the context of reassuring foreign investors. As public spending is intensifying, bond issuance is increasing to fund the massive projects. Creating a transparent and accountable environment for bond investment will be key to growth in the sector.
Click here for Mena's Bond Panorama - April at a Glance
Joey Geadah
Research Associate- Bonds
joeyg@zawya.com
© Zawya 2011
