Middle East borrowers are increasingly weighing Australian-dollar bonds as they seek to tap one of the world's biggest sources of pension funds, according to HSBC.
Three regional lenders including National Bank of Abu Dhabi sold A$1.05 billion (Dh3.61bn) of debt this year, known as Kangaroo bonds, compared with two sales in 2013 for A$475 million, according to data compiled by Bloomberg.
“We expect to see further transactions from Middle Eastern issuers,” Mustafa Aziz Ata, HSBC’s head of debt capital markets for the Middle East and North Africa, said this week. HSBC anticipates working on another three kangaroo-bond deals for clients in the region, he said, declining to identify the issuers.
Banks are turning to new markets for funding as they guard against an eventual tightening of credit in the United States. Australia’s pool of pension funds is the world’s fourth-biggest, while European and Asian bank demand for Aussie-dollar assets is helping to bring down the cost of funding in the currency, according to HSBC.
The yield on Australian government bonds maturing March 2019 fell 25 basis points this year to 3.23 per cent yesterday, according to data compiled by Bloomberg. That compares with an average drop of 16 basis points to 4.63 per cent for Middle East bonds, according to JPMorgan indexes.
National Bank of Abu Dhabi, the UAE’s biggest lender, raised A$400m from five-year securities in March. Third-ranked First Gulf Bank followed two weeks later, selling A$250 million, and second-placed Emirates NBD issued A$400m of securities this month. HSBC helped arrange all three deals, data on Bloomberg show.
“Over the years, Emirates NBD has issued in a range of currencies,” Shayne Nelson, the bank’s chief executive, said. “As well as diversifying our investor base, there was a marginal cost saving when we swapped the proceeds” from this month’s sale into US dollars, he said.
The Australian dollar is the second-best performer among 10 developed currencies tracked by Bloomberg Correlation-Weighted indexes, rising 4.3 per cent this year.
Emirates Bank International, which merged with National Bank of Dubai in 2007 to create Emirates NBD, sold the first kangaroo bonds from the Middle East in 2006.
International issuers, including the United Nations and the Royal Bank of Canada, raised A$27.2bn from sales of the securities last year, according to data compiled by Bloomberg. Issuers selling bonds in different currencies typically swap them into US dollars.
“The local currency markets are now maturing and liquidity is deepening,” Andrew Koczanowski, the Australian head of debt syndication at HSBC, said. “It might not be hugely cheaper, because obviously there are additional costs in swapping.”
Last year the Australian currency lost 14 per cent against the US dollar, according to data compiled by Bloomberg.
Bond sales in the GCC have declined 32 per cent this year to $12bn as borrowers favour loans, according to data compiled by Bloomberg.
Follow us on Twitter @Ind_Insights