Published: April 9, 2009
Abu Dhabi and Qatar successfully raised US$5bn in one week in early April, as the emerging market bond market started to open up after a dry first quarter. Bankers hope the deals will open the door for corporate issuers from the EMEA region.
Abu Dhabi was the first to the Eurobond market, issuing two US$1.5bn five-year and ten-year deals, that were both priced at 420 basis points over US Treasuries.
The lead-managers were Citigroup, Deutsche Bank and JP Morgan. Banks declined to comment, but traders say the deal book was around three times oversubscribed, with international investors buying 72% of the five-year bond, and 90% of the 10-year.
The deal helped bring confidence to the UAE debt market, at a time when corporates in Dubai and Abu Dhabi are struggling to re-finance debt.
For example, on April 8, the Dubai Electricity and Water Authority (DEWA) re-financed a US$2.2bn loan, though it had to pay high margins to do so.
Luigi Landoni, general manager for the Dubai office of Intesa Sanpaolo, says: "Last year, it paid 30bps. This year, it is prepared to pay 300bps. It makes it very attractive for banks."
On April 1, Qatar raised US$2bn via a US$1bn five-year deal and a US$1bn ten-year deal. BNP Paribas, Goldman Sachs and HSBC were the lead-managers.
Robert Whichello, co-head of European debt syndicate at BNP Paribas, says: “It’s been a long wait to buy sovereign deals from the GCC. There was a lot of pent-up demand for both Qatar and Abu Dhabi.”
The Qatar five-year deal was priced at 330 basis points over US Treasuries, and the ten-year deal at 350, putting the deals 60 basis points and 40 basis points tighter than Abu Dhabi, respectively.
Whichello thinks the deals will help open up the international markets for corporate issuers from the Gulf: “What we saw happen in Latin America is first the sovereigns issued, then the sub-sovereigns, then some corporates, and finally some banks. The EMEA region is hopefully following suit.”
Russian issuers waits for market re-opening
One interesting market to watch will be Russia, the source of most EMEA Eurobond issuance during the years of easy credit.
Gazprom, the state-owned gas company, successfully issued a two-year CHF400mn bond in early April, which priced with a 9% coupon.
The company, which was downgraded to Baa1 by Moody’s on April 4, plans to issue a US$1.5bn-2bn dollar-bond in mid-April. It has mandated Credit Suisse as the sole lead-manager.
Russian corporates have around US$70bn in debt to re-finance this year. Whichello of BNP Paribas says: “It would be useful to see the government or a state-guaranteed company set a benchmark in the international debt markets.”
Russian Railways, a possible candidate for such an issue, has said it does not plan to issue a proposed US$4bn in Eurobonds until the second half of the year.
However, Vnesheconombank, the state-owned development bank, says it could issue US$1bn in the second quarter.
Africa sees sunny side
In African debt, South Africa is looking to issue a US$1bn Eurobond in the coming weeks.
The African debt market also received a boost from recent multilateral moves. Ghana, whose Eurobond issue was coming under pressure over concerns about the country’s low FX reserves, benefitted from an FX reserves boost from the recent SDR hand-out from the IMF, announced at the G20 summit in the first week of April. The bonds have tightened as a result.
The Ivory Coast also seems to be moving rapidly towards a deal with London and Paris Club creditors over debt forgiveness.
Francis Beddington, head of research at hedge fund Insparo Asset Management, says; “The negotiations are moving very fast. People want to get it over and done with. The country’s tradable debt has picked up from around 15 to around 20, and it could go higher.”