The Middle East has seen an unprecedented start to the year for bond issuance with 14 borrowers from the region tapping international markets in the first full week, raising close to US$30bn in total.

That already surpasses the amount raised by the region's borrowers in the whole of January 2025, while issuance across CEEMEA this past week, at just over US$43bn-equivalent, is already on a par with the volume raised in the first month of last year.

The Middle East is expected to have another huge year of issuance, with one DCM banker forecasting a 25%–30% increase over last year's record volume, which was close to US$172bn, according to LSEG data.

"Funding needs are elevated given lower oil prices as well as sustained growth in the non-energy sector, which is creating strong demand and profitable opportunities for borrowers," said Faisal Ali, senior portfolio manager at Azimut.

Non-regional investors, in particular Asian banks and funds, are becoming a more meaningful provider of liquidity to support the flow.

That was evident last week with most deals comfortably subscribed. What helped was that investors had plenty of choice. Of the 14 issuers, five each came from Saudi Arabia and the UAE, three came from Israel, and one from Kuwait.

There was also almost every type of deal on offer – standard sovereign transactions, FIG offerings that encompassed covered, senior, Tier 2 and AT1 bonds, and corporate senior and hybrid debt.

Bonds lower down the capital structure in particular appealed to investors. Uday Patnaik, head of emerging markets debt at LGIM, said that as well as Saudi Arabia's US$11.5bn four-tranche transaction on Monday, he looked at Al Rajhi's US$1bn perpetual non-call six social AT1, Riyad Bank's US$1bn 10-year non-call five sustainable Tier 2 and Aldar Properties' US$1bn 30.25-year non-call 7.25 hybrid. With "investment-grade spreads so tight", he said these deals were a means to lock in yield. 

"Most deals are coming at the tight end of our fair value target," Ali said.

Amid all the issuance, arguably the highlight was a rare project bond from a Middle East borrower. The US$870.75m June 2053 green senior secured amortising bond sold by Abu Dhabi issuer Dhafrah PV2 Energy Company on Thursday could easily have got lost amid the spree of deals.

But the offering, which has a weighted-average life of 17 years, held its own, gaining a book of more than US$2.1bn.

Project bonds from the region haven't always fared well, whether because of pricing, the structure or broader market conditions at the time. Dhafrah's is the first such bond from the Gulf region since July 2024 and the first from the UAE since 2022, but bankers hope it will pave the way for more issuance.

"It is very specific in terms of sector and ownership profile that works and it takes a long time to structure, but I do expect a handful more," said a lead banker on the Dhafrah deal about supply prospects.

Growing pipeline

Certainly, there's a growing pipeline of projects. In the solar photovoltaic area alone, Abu Dhabi has several big projects underway, with tenders closing soon on PV6 and PV7. The PV3 and PV4 projects have already reached financial close, while PV5 is expected to do so later this month.

These projects are critical to Abu Dhabi's energy transition given the government's target to source more than 60% of its electricity from green generation by 2035.

Strong links

As ever with these deals, there were two aspects for investors to consider – the structure and pricing. On the former, much of the risk is mitigated by the strong links to the Abu Dhabi government. The issuer is 60% owned by two government-related entities, Taqa and Masdar, with the rest split between France's EDF and Jinko Power (HK).

All the electricity generated from the 2GW Al Dhafra solar complex, about 30km south of Abu Dhabi, is sold to Emirates Water and Electricity Company, which is indirectly owned by the government, under a 35-year fixed-tariff take-or-pay power purchase agreement that began in June 2023 when the project became operational. That agreement is longer than the life of the bond.

EWEC covers the debt obligations of the project under most termination events, according to deal documents, and this obligation is backed by an unconditional guarantee by the government.

In addition, the bonds, which are expected to be rated A3 by Moody's and A by S&P, have a credit enhancement feature, namely a tariff rebate mechanism to achieve a base case debt service coverage ratio of 1.4 times. 

That would be significantly higher than a previous EWEC-related project bond from Sweihan PV Power Company in 2022, which had a debt service coverage ratio of 1.2 times. That US$700.8m January 2049 green amortising bond, which now has US$642m outstanding, was rated Baa1 by Moody’s and BBB+ by S&P. The latter subsequently upgraded the bond to A– in March 2024.

The proposed higher debt service coverage ratio for the Dhafrah bond reflects the comparatively higher tariffs secured under the PPA with EWEC, according to S&P. A mechanism allows EWEC to recoup part of the tariff via rebate payments but these are only made once the senior debt has been serviced. In addition, there are no default implications.  

As for the pricing, the lead banks referenced the Sweihan bond, as well as other Abu Dhabi project bonds, the government and also Masdar and Taqa. Books opened at 130bp area over the 20-year Treasury, with the deal landing at plus 100bp.

"The deal printed at or slightly inside where a new Sweihan bond would have come," said a second lead banker. "This was a very nice opportunity for investors to add UAE risk with duration at an attractive spread vis-a-vis the traditional quasi-sovereign names."

BNP Paribas and HSBC were global coordinators, and bookrunners alongside Credit Agricole, MUFG, Standard Chartered and SMBC.