Jordan mulls issuing bonds to cover budget shortfall

The government of Jordan has asked banks to submit proposals to arrange a US dollar conventional or Islamic bond issue, sources familiar with the matter said yesterday.

The bond would be of benchmark size, said one of the sources, declining to be named because the information is private. Benchmark-sized bonds are generally upwards of US$500 million.

Jordan issued its first domestic sukuk last year, but should it opt for an Islamic bond, the planned debt sale would be the first international sukuk ever issued by the country.

Jordan's ministry of finance did not immediately respond to a request for comment.

Jordan raised $500m in April through a tap of its existing $500m bond issued in November 2015 and maturing in 2026. Under a bond tap, an existing transaction is reopened for subscription, using the same documentation as before.

It also issued last October a $1 billion bond maturing in January 2027, with Citi and JPMorgan leading the transaction.

Jordan's economy has been severely hit by the flow of refugees arriving from Syria since 2011. "Providing for the needs of the Syrian refugees in Jordan has materially impacted Jordan’s public finances and will continue to do so," said Jordan's latest bond prospectus, dated April 2017.

"If the Kingdom does not receive additional and sufficient assistance from the international community(...)the presence of large numbers of Syrian refugees in Jordan will continue to materially strain the general resources of the Government and negatively affect the Kingdom’s economy."

Jordan, rated B1 by Moody's and BB-minus by Standard & Poor's, is receiving support from the International Monetary Fund through a three-year, $723m extended fund facility, which was approved in August last year.

It also relies on funds from the World Bank and other international organisations. Before the issue of $500m in bonds in November 2015 as a standalone credit, Jordan issued bonds fully guaranteed by the US government through the US Agency for International Development (USAID).

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Jordan makes it easier for Syrian refugees to work

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Jordan mulls issuing bonds to cover budget shortfall

Syrian refugees putting strain on country's finances

How to protect yourself when air quality drops

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