* Blue-chip Qatar firms expanding around Middle East
* They will continue to enjoy government support if needed
* But investors may start to view them more as standalone credits
* Debt levels, country risks may be scrutinised
* Ooredoo bonds underperform sovereign
By Rachna Uppal and Mala Pancholia
DUBAI, May 2 (Reuters) - A foreign acquisition drive by Qatari companies is winning the gas-rich country international attention and economic influence around the region. But it may have a less positive effect on the bond prices of some of the companies.
Blue-chip bond issuers such as Qatar National Bank
In the past, when their business focus was primarily domestic, these partly state-owned companies were viewed by many investors as essentially part of the Qatar government, which is rated AA by Standard & Poor's. The companies could price bond issues very close to the sovereign curve, with almost no new-issue premium.
Spreads on their bonds may now start to reflect the higher risk associated with their global expansion strategy, even though the companies can probably still count on government support if needed.
Investors may look at how much debt the companies take on to fund their acquisitions, and the risks involved in operating in unstable countries in the region.
"This raises the question of whether investors in Qtel or QNB bonds are buying Qatar risk, or a combination of Iraq, Indonesia, Tunisia or potentially Morocco risk," credit analysts at Standard Chartered noted in a research report.
"Thus, the increasingly aggressive acquisition appetite of Qatari credits could start to get priced into credit spreads, with or without rating agency action."
ACQUISITIVE
QNB is probably the most acquisitive bank in the Gulf Arab region. After securing stakes in banks in Egypt, Libya, the United Arab Emirates and Iraq, it is scouting for a majority stake in a top-ten Turkish bank.
It is not the only Qatari lender which feels the need to move beyond its crowded domestic market. Commercial Bank of Qatar
Outside the banking sector, Ooredoo is going head-to-head with the UAE's Etisalat
"So far Qtel's acquisitions have been successful, even the ones in the riskier regions such as Iraq," said Apostolos Bantis, emerging markets credit analyst at Commerzbank in London.
But he voiced caution about the Maroc Telecom stake. "Qtel's contemplated Morocco transaction is a bit questionable and perhaps if it finally goes ahead may result in some volatility on its bonds."
Last week, S&P placed its long and short-term corporate credit ratings for Ooredoo on creditwatch "negative" after the company submitted a binding bid for the stake.
"Any meaningful debt increases from the acquisition will lead to a downgrade," said the agency, which currently rates Ooredoo as A.
Ooredoo is also majority shareholder in Iraqi telecommunications operator Asiacell
APPETITE
Regardless of acquisition activities, the bonds of Qatari companies are likely to remain in demand among international investors looking for exposure to the Middle East, partly because of the scarcity of investment-grade credits from the region. But the bonds of both QNB and Ooredoo have come under pressure in secondary market trading in recent weeks.
QNB's most recent issue, maturing in 2020
The bond is offering over 20 basis points more than National Bank of Abu Dhabi's 2019 maturity
Commerzbank's Bantis said he believed the underperformance of QNB's last two bond issues had more to do with overall spread compression in global markets and aggressive pricing than its acquisition activity.
But the yield on Ooredoo's $1 billion, 2023 bond
(Editing by Andrew Torchia)
((rachna.uppal@thomsonreuters.com)(+971 4 366 4240)(Reuters Messaging: rachna.uppal.reuters.com@reuters.net))
Keywords: QATAR BONDS/
