UAE's bond market activity was the highest in the MENA region during 1H11, boosted by sovereign borrowers. Nancy Mitri, Zawya's Bond Analyst, examines the reasons behind this upsurge and the direction in which the UAE bond market is heading.
ZAWYA
July 18, 2011
18 July 2011 UAE's bond market activity was the highest in the MENA region during 1H11, boosted by sovereign borrowers. Nancy Mitri, Zawya's Bond Analyst, examines the reasons behind this upsurge and the direction in which the UAE bond market is heading. During the first half of 2011, UAE was the biggest issuer of conventional bonds in both the GCC and MENA regions, according to data compiled by Zawya Fixed Income Research. Aided by political and economic stability and supported by huge project finance requirements, expansion and growth plans, and by the need to refinance existing debt in other cases, the UAE witnessed the issuance of USD9.6 billion of bonds in 1H2011.
Corporate bonds represented around 23% of the total value of bonds issued in the UAE while the remaining share went to government-owned entities. The three corporate bonds came from First Gulf Bank (CHF200 million) in January, Abu Dhabi Commercial Bank (CHF150 million) in February, and Aabar Investments (EUR1.25 billion) in May. Despite the corporate nature of these companies, it is worth mentioning that the government of Abu Dhabi is the biggest shareholder in all these corporations. Nevertheless, the UAE was the sole issuer of corporate bonds in the GCC in 1H2011.
International Petroleum Investment Company was the biggest issuer of bonds with a dual-tranche issue of EUR2.5 billion equally split, followed by a third GBP550 million tranche as part of its GMTN program. The oil and gas company was initially planning to sell the Euro tranches but the sterling tranche was added in response to strong demand during the roadshow. IPIC used the funds to acquire Spain's Compania Espanola de Petroleos, or Cepsa.
Similarly, government-owned Mubadala Development Company issued a USD1.5 billion bond comprising two equal tranches of USD750 million that were listed on the London Stock Exchange. Mubadala's head of capital markets, Ali Najafbagy, said at the time: "On the corporate level, there are no issues of bonds any time soon, but we are looking to issue project bonds that are liquid, benchmark-type transactions."
Aabar Investments started the month of May ith an exchangeable bond over Daimler shares, that was upsized from an initial EUR750 million to EUR1.25 billion. The bond matures in 2016 and carries a coupon rate of 4%.
June was a remarkable month as the UAE bonds market hummed with activity. After it last tapped the market with its dirham-denominated bond in 2006, Emirates - the Middle East's largest airline - made a strong comeback with an issue of USD1 billion. The bond was closed on June 1and received an extremely positive response from international investors. Since then, the wheels were set in motion and a series of bond issuances and announcements took place. Also in Dubai, the government sold a USD500 million 10-year bond under its USD4 billion EMTN currently upsized to USD5 billion. The oversubscription of 360% demonstrated the investors' renewed confidence in Dubai.
