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Gulf Debt Market to Gain as Dubai `Cleans House,' Exotix's Alanani Says
Ahmad Alanani, the London-based associate director for the Middle East and North Africa at Exotix Ltd., comments on bonds in the Gulf.
Alanani spoke in a telephone interview yesterday. Exotix is an investment bank specializing in illiquid bonds, loans, equities, structured finance, capital raising and asset management.
On Gulf Cooperation Council bonds:
“GCC fixed-income markets, in particular Dubai, will extend gains in the next three to six months. The region still compares very favorably to the rest of emerging markets and certainly to Europe. As Dubai cleans house, the region will continue to attract investors, including new investors who will bring fresh money to the market.
“Fixed-income markets in the region will continue to outperform equity markets. At the micro level, company earnings will disappoint in the next three to six months and particularly in the United Arab Emirates. There is a sense of retrenchment on the part of corporates, they are boosting their cash reserves and paying down their debt, which means any outstanding debt they have will start looking more and more attractive.
“The region’s fixed-income market really compares very favorably to the rest of emerging markets. It is a region that still has very healthy fundamentals, substantial cash reserves and strong fiscal positions.
“The sort of yields we see in this region are better than what we see in Brazil, China and Russia. We are seeing on the trading side more and more new foreign money coming into the fixed-income markets in the region. There is still value and yields of 5 percent plus from some healthy and solid credits.”
On Sukuk:
“Sukuk products will perform in-line with general fixed- income markets in the region. In the next three to six months, fixed-income markets in the region will outperform equity markets and that includes sukuk. But, sukuk will probably trail a bit back from conventional fixed-income markets in the region.
“There is legal and operational risk associated with investing in sukuk. We still don’t have a standardized format for sukuk issuance. Investors, particularly foreign, have their doubts about enforcement under the various structures. The sukuk market remains largely untested in the event of a default. That will hold it back, and until there is a standardized framework for issuing sukuk that everyone agrees on, investors will demand a risk premium to hold sukuk.
“There is also a lack of issuance in the sukuk market. A lot of the recent issuances have been from sovereign or quasi- sovereign entities with very rare exceptions, such as Dar Al Arkan. It is still much easier for GCC companies to issue a conventional bond because of the wider appeal and the better pricing. Those two issues will hold back the sukuk market in the near to medium-term.”
To contact the reporter on this story: Shanthy Nambiar in Dubai at snambiar1@bloomberg.net
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