Being the month of blooming and flourishing, ironically enough, April offered the MENA region a foggy atmosphere, with volcanic eruptions ranging from political unrest to early signs of economic stagnation. Discrepancies were recorded among the region's nations, due to the variations in their political economies. Some are trying to deal with the post revolution results; others are already in the midst of a change, while the rest are awaiting their turn on the list.
Despite these stressful realities, the overall MENA bond market resumed activity. Announcements, issuances, regulations and repayments of bonds were documented in this month.
Surviving sudden death
Shattered by unprecedented political turmoil, financial activity in MENA's smallest country, Bahrain, came to a halt. Nevertheless, government debt, orchestrated by the Central Bank of Bahrain, or CBB, remained intact throughout the first quarter of 2011. Its oversubscription reflects the high confidence of current and potential borrowers. Local appetite demonstrates that Bahrain's domestic market liquidity is yet to be affected. This is widely proven through the swift recovery via Bahrain's benchmark sovereign issue price.
The sultanate's potential scope
Mena's only sultanate, Oman, stepped on the overseas bond stage through the nation's second biggest bank, the National Bank of Oman, or NBO, which will raise USD600 million from global markets by next year. This will be partly used to reimburse the USD325 million syndicated loan that matures by then. There is every possibility that the issue might be floated next year.
Whether to raise the cash through one issue or multiple ones is based on two key determinants - the bank's requirements and the market's circumstances. Muscat and its financial institutions suffer from the fact that foreign investors don't distinguish between countries within the region. Hence, if a market status quo prevails next year, banks should seek other alternatives. According to the NBO's General Manager, Humayun Kabir, bilateral funding arrangements with other banks to allocate dollar funds from international markets could be a feasible alternative.
Surplus cash pays off for Kipco
The Kuwait Projects Company, or Kipco, settled in April its USD350 million five-year bond under its USD2 billion EMTN program, which was launched in April 2006. This issue was the premiere by a private sector company in the Middle East. "We ended last year with over one billion dollars in cash which means we can now repay our debut USD350 million bond issue on time and with plenty of cash to spare for our current needs," said Kipco's CFO Pinak Maitra. In addition, the continuous and recurring extension of Kipco's terms of its issues shows the credibility and trustworthiness it offers to its borrowers, even though Maitra's statement came just after a Moody's statement regarding a possible downgrade of Kipco's issuer ratings.
Decisive regulations
Home of the FIFA 2022 world cup and the world's largest per capita producer of oil and gas, Qatar continues to be a bond powerhouse. Nonetheless, recent pro-democracy protests in the region have brought the question of political reform home to Doha. Sheikh Hamad Bin Khalifa Al Thani, the ruling Emir of Qatar, is emphasizing economic and foreign policy issues, in an independent framework, being concurrently a harmonizing factor between the US and Iran. At the beginning of April, Commercial Bank of Qatar, or CBQ, approved a Euro-medium term note bond program allowing the issuance of bonds and other debt up to USD5 billion.
In a different context, the Qatar Financial Markets Authority is examining applications for bonds listings on the local bourse. CBQ has asked lenders for comprehensive data regarding issues of commercial paper, certificates of deposit and bonds. Also, banks should disclose whether they intend to list their issues on Qatar Exchange. These measures were taken obviously as regulatory steps to manage the financial activities according to the rules and norms.
Positively in exile... at least for now
Unaffected by most of the events in the region, UAE continues to tread its own path. On April 13, Abu Dhabi's Mubadala Development Company launched bonds worth USD1.5 billion. This included USD750 million in five-year bonds at 180 basis points and another USD750 million of 10-year bonds at 210 bps, over US Treasuries. The firm's bonds were rated at AA by Fitch and Standard & Poor's, and Aa3 by Moody's. The near future seems solid for Mubadala, which plans to invest around USD16.3 billion; this is almost four times the spending over the past three years. Global banks such as Barclays Capital, HSBC and Standard Chartered are incorporated in the bond deal as joint book-runners.
Waha Capital, whose largest shareholder is Mubadala, is taking the same step. It said on April 25 that it will issue convertible notes worth AED500 million by the end of June 2011. Once the terms are given the green light by Waha Capital's board, key components such as coupon rate will be announced. Usage of the funds not been disclosed.
Assessing Amman
Cruising towards the Dead Sea, a country risk assessment on Jordan was published in April. It was based on five indicators - including currency risk, political risk and economic structure. In terms of sovereign risk, a USD750 million international bond with a five-year tenor was issued, offering a 3.38% coupon rate paid semi-annually.
In terms of currency risk, the dinar looks stable by virtue of its peg to the US dollar. Good news for the kingdom is that its current-account deficit will shrink in 2011-2012. Nevertheless, foreign investment will decrease between 2011 and 2015, which might depress the dinar, especially if the region's political situation deteriorates.
The third indicator reflects the banking sector. Jordanian banks were immune to a certain extent against the latest global financial crisis, given the fact that the Central Bank of Jordan worked towards tightening financial regulation.
The fourth indicator is the political risk, a hot topic nowadays. Despite the continuous promises for extensive reforms, protests erupted in early 2011 creating tensions between officials and the opposition.
Last but not least, the economic structure unraveled due to its high public debt. The kingdom heavily relies on remittance inflows to finance and cover its fiscal and current-account deficits, with limited natural resources on hand. Thus, these five significant indicators classify Jordan as a "B" country risk, at least for the near future.
Comeback of the Pharoah?
North Africa witnessed timid bond activity due to the political conditions. Egypt is trying to bounce back on MENA's bond scene in the aftermath of its revolution. On April 14, Commercial International Bank, or CIB, announced the issuance of EGP5 billion in convertible bonds, or their equivalent in other currencies. Is this a sign of a resurrection in Egyptian bonds? Only time will tell.
The MENA region is setting on an earthquake line by trying to isolate, confront, or bounce back from nerve-racking conditions. This means, unfortunately, that the region is unlikely to be a financial or economic haven in the near future.
Joey Geadah
Research Associate - Bonds
joeyg@zawya.com
© Zawya 2011
