S&P Cut Can’t Stop Ooredoo Yields From Falling: Islamic FinanceRobert Tuttle
Islamic bond investors in Qatar’s state-controlled phone company are disregarding this week’s downgrade by Standard & Poor’s, pushing yields to the lowest since the debt was sold as the company expands abroad.
The yield on the December 2018 sukuk of Ooredoo QSC fell 21 basis points this year to 2.96 percent today, according to data compiled by Bloomberg. That compares with a two basis-point drop to 4.9 percent yesterday in the average yield of Middle East Shariah-compliant debt, JPMorgan Chase & Co. indexes show. The risk profile for the company previously called Qatar Telecom is “significant,” S&P said as it cut the rating one step Feb. 3.
Ooredoo’s push into emerging markets includes building a $15 billion phone network in Myanmar, and expanding its presence in North Africa. While the ratings company cited the increased spending and economic volatility amid a global developing-nation rout as reasons for the rating change, these factors won’t “substantially change” the company’s credit profile, said Amol Shitole at SJS Markets Ltd.
“We don’t see much of an impact on the sukuk or bond prices of Ooredoo,” Shitole, a credit analyst at SJS Markets in Bangalore, India, said by phone yesterday. “The company enjoys strong implicit support from the government. They have excellent access to capital markets.”
S&P didn’t respond to a phone call made yesterday seeking comment.
Ooredoo, Qatar’s biggest company by revenue, sold $1.25 billion of five-year sukuk in November. Bonds in developing countries are tumbling as the U.S. reduces stimulus measures and after manufacturing data from China cast doubt on the global economic recovery. The average yield on emerging market notes jumped 15 basis points this year to 5.45 percent today, according to Bloomberg indexes.
“You might see the yields go up slightly, but long term we don’t see much impact” from the downgrade, Bobby Sarkar, head of research at Qatar National Bank Financial Services, said in by phone yesterday.
Ooredoo’s non-Shariah compliant debt performed less well than peers. The yield on the company’s $600 million notes due June 2019 fell 31 basis points this year to 3.03 percent today, compared with a 54 basis-point decline to 5.14 percent in the yield of a May 2020 bond from Bahrain Telecommunications Co., according to data compiled by Bloomberg.
Ooredoo reported a 58 percent drop in third-quarter net income on foreign exchange losses, primarily from Indosat, its Indonesian unit, it said in October. The company is “keeping an open eye” for acquisition opportunities in the Middle East and southeast Asia, Chief Executive Officer Nasser Marafih said that month.
The telecommunications operator pulled out of the race to buy Vivendi SA’s stake in Morocco’s Maroc Telecom in June. It also won a license to operate in Myanmar, as did Norway’s Telenor ASA.
Its first Islamic bond sale followed a $1 billion offering of bonds in January last year. The telecommunications operator has almost $1.84 billion of debt due this year, according to data compiled by Bloomberg. Ooredoo didn’t respond to an e-mail seeking comment yesterday.
“The company enjoys strong implicit support from the government of Qatar,” Shitole said. “The deterioration in credit metrics owing to currency weakness, particularly in Indonesia, intense competition in its emerging market businesses and costs associated with setting up its Myanmar operations wouldn’t be significant enough to substantially change the credit profile.”