Qatar National Bank’s Bond Seeks Longer-Term Money: Arab Credit

Qatar National Bank SAQ, the Gulf country’s biggest bank by assets, may raise about $1 billion from a bond sale as it seeks longer-term money to fund growth.

The state-controlled lender said Aug. 29 it set up a $7.5 billion euro medium-term note program and hired Barclays Plc, HSBC Holdings Plc and QNB Capital to manage the sale. The money raised would be used for “normal operations,” it said.

The maturity of Qatar National’s loans is much longer than the duration of its customer deposits and it’s likely to try and close that gap, Raj Madha, a Dubai-based analyst at Rasmala Investment Bank Ltd., said in a telephone interview yesterday. “They’re well supported by the government, their business is pretty secure, they have a lot of capital and I would expect them to issue debt at a pretty good rate.”

Qatar’s banks need to raise funds for growth as the economy of the world’s biggest exporter of liquefied natural gas is forecast to expand 15.7 percent this year. The country plans to invest about $88 billion in infrastructure for the 2022 soccer World Cup, Enrico Grino, Qatar National’s assistant general manager and head of project finance, said in May.

Doha-based Qatar National sold $1.5 billion in five-year bonds in November at a coupon of 3.125 percent, or 1.8 percentage points over the benchmark mid-swap rate. That issue received $6 billion in bids, it said at the time. Yields on the bond quoted at 2.88 percent at 11 a.m. in Doha, declining 73 basis points, or 0.73 of a percentage point, this year, according to data compiled by Bloomberg.

Earnings Jump

Madha estimates Qatar National may raise as much as $1 billion from a five-year or seven-year note sale by the end of the year.

Qatar National said July 6 second-quarter earnings jumped a better-than-expected 26 percent to 1.81 billion riyals ($497 million) helped by higher interest income. The bank’s loan book expanded 28 percent from a year ago to 150.5 billion riyals.

Qatar’s sovereign bonds were the best performers in the Middle East in August as investors sought refuge from a slowing U.S. economy and a worsening debt crisis in Europe. Four of the five best-performing securities among the 32 that make up the HSBC/NASDAQ Dubai Middle East Conventional Sovereign Bond Index were from Qatar. The fifth was from Abu Dhabi.

Qatar, the United Arab Emirates and Saudi Arabia are a part of the six-nation Gulf Cooperation Council, which holds about a fifth of the world’s proven oil reserves. Crude prices jumped about 40 percent in the past five years even after tumbling 6.6 percent this quarter to $89.17 a barrel.

Growth Target

Qatar National also raised 12.7 billion riyals ($3.5 billion) from a one-share-for-four rights offer in May which was fully subscribed. The issue was aimed at boosting core capital and help Qatar National become the biggest Gulf Arab lender over the next three to five years, it said then.

Qatar National may raise $1 billion to $2 billion from a bond sale, Jaap Meijer, head of the bank team at AlembicHC Securities said in an interview from Dubai yesterday.

“They have the strongest liquidity of all the Qatar banks so they will do this off a position of strength rather than weakness,” Meijer said by telephone. Qatar National “will use the money for their strong future growth,” he said.

Qatar National’s shares have risen 6.9 percent this year that compares with a 1.2 percent increase in the Qatar Exchange Banking Sector Index.

Underleveraged Bank

Qatar National is underleveraged with a debt to equity ratio of 54.4 percent, according to data compiled by Bloomberg. It had a return on equity of 22 percent last year, compared with the banking industry’s average of 13.5 percent in Qatar.

The default risk of Qatar, rated AA by S&P, was at 106 yesterday, the second-lowest in the GCC. Default risk for Abu Dhabi, holder of about 7 percent of the world’s oil reserves, quoted at 105 and for Saudi Arabia at 114, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Still, “the global macro-economic environment is not particularly conducive to an international bond sale,” Nick Stadtmiller, a fixed-income analyst at Emirates NBD PJSC, the U.A.E.’s biggest bank, said in an interview yesterday. “Any local issuer that were able to sell dollar bonds in this environment would likely have to pay a premium to place the bonds internationally.”

Greek Troubles

Greece’s perceived chance of default in the next five years has soared to 98 percent, based on a standard pricing model of credit-default swaps, as Prime Minister George Papandreou fails to reassure international investors. German Chancellor Angela Merkel said in an interview with Berlin-based broadcaster Inforadio she won’t let Greece fall into “uncontrolled insolvency” because the risk of contagion for the other euro-zone countries “is very big.”

“Several companies from the region had to postpone plans to issue bonds in the summer, and the global situation has not improved since then,” Stadtmiller at Emirates NBD said.

No issuer from Qatar has sold bonds this year. Governments and companies from the GCC have raised $11.8 billion from 26 securities so far this year. First Gulf Bank PJSC, the U.A.E. lender controlled by Abu Dhabi’s ruling family, raised $650 million in July from the sale of Islamic bonds or sukuk at a coupon of 3.797 percent, Bloomberg data shows.

“New issues are likely to be pushed to the backburner, although Qatar may be an exception because Qatar’s bonds are highly rated,” Madha at Rasmala said. “The sovereign bonds and quasi-sovereign bonds may escape global concerns and may still benefit from the flight to quality.”

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