US-dollar bond issuance in the Arabian Gulf is expected to reach up to US$40 billion this year compared with $38bn last year, driven by the UAE, an executive from France’s Crédit Agricole said.
The UAE’s diversified economy makes it more resilient to the oil price drop and more attractive to investor appetite for its issuers, the bank said.
“We expect the UAE to stand out because the UAE is much more diversified than other economies in the GCC and it has a lower reliance on oil prices,” said Christiane Nasr, the head of regional fixed income and the director of the Dubai office at Crédit Agricole Private Banking.
“Dubai bonds are the most attractive bonds in the region so far, and there is still a lot of room for spread compression if we are to compare it to Abu Dhabi.
“This year we can expect Dubai to do better [than Abu Dhabi]. We can expect Dubai to issue more and more bonds because it has huge infrastructure projects such as Expo 2020. Also, it wants to build its reputation [in the bond market].”
Some of the companies expected to sell debt this year include the government-related entity Dubai Holding, which could raise between $500 million and $1bn, she said.
Other names that could tap the debt market are Emaar Properties, the Dubai carrier Emirates Airline and the low-cost carrier flydubai. Many new issues, especially from corporates, came to the market last year, and many more are expected this year. The deleveraging that Dubai firms have conducted since 2009 has helped to improve the emirate’s reputation among investors, Ms Nasr said.
“Dubai has stronger feet than before and there is huge confidence from global investors [in Dubai],” she said. In Saudi Arabia, where the government plans to open up the stock market to foreign investors in the first half of this year, bond issuances are expected to rise as foreign investors flock to the region’s biggest equity market.
“This will trigger the opening of local bonds in Saudi riyals for foreign investors,” said Ms Nasr.
The Mena region outperformed the rest of Asia last year in terms of total returns on bonds, but this year the region is expected to drop to second place and be topped by the rest of Asia.
As a net importer of oil, Asia will perform better than Mena in terms of total returns on bonds, where oil exporters are suffering from a 60 per cent drop in the price of crude since June of last year.
Crédit Agricole expects Mena bonds to have a total return of about 5 per cent this year, compared with an average of 7.2 per cent last year, she said.
Yields on Mena bonds have widened as the oil price has dropped, leading to slower growth and heightened risk in holding regional paper. Despite the oil price slump and instability in the region, Mena bonds still perform well against other emerging markets such as Brazil, Venezuela and Russia, she added.
dalsaadi@thenational.ae
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