Qatar Battling Neighbors Pays Price With Investors: Arab CreditRobert Tuttle
Qatar is paying the price for its six-week spat with neighbors in the Gulf Cooperation Council as the nation’s borrowing costs and credit risk increase.
The yield on the country’s dollar bond due January 2020 climbed nine basis points since March 4, the day before the United Arab Emirates, Saudi Arabia and Bahrain pulled their ambassadors after Qatar denounced the crackdown on the Muslim Brotherhood in Egypt. Rates on similar-maturity dollar debt from Abu Dhabi and Dubai fell in the period.
The dispute is undermining investor confidence in Qatar even as the world’s biggest liquefied-natural-gas producer spends $200 billion on roads, stadiums and a new city in preparation for the 2022 soccer World Cup. The U.A.E. was the country’s fourth-biggest source of imports in 2012, and Qatar’s economy is vulnerable should Saudi Arabia hamper trade across its only land border, the Brookings Doha Center said last month.
Qatar “is perceived as the party at risk should the dispute escalate, regardless of the real likely economic impact,” Farouk Soussa, head of Middle East economics at Citigroup Inc. in London, said in an April 15 e-mail. “The whole affair has brought into sharper focus the credit dynamics of the individual GCC countries.”
Qatar’s five-year credit default swaps, contracts for insuring debt, gained seven basis points since March 4 to 62 yesterday. That compares with declines of two basis points to 53 for Abu Dhabi and 24 basis points to 170 for Dubai.
The three GCC countries withdrew their diplomats from Doha, accusing Qatar of failing to take action against those who threaten the security of the GCC and honor a pledge to refrain from supporting “hostile media.” Qatar’s Foreign Minister Khalid bin Mohamed Al-Attiyah said last month the country’s foreign policy “isn’t negotiable.”
Qatar, which became the richest country in the world per capita through LNG exports, backed the Muslim Brotherhood government of Mohamed Mursi in Egypt after it gained power in a 2012 election and extended $8 billion in aid. Saudi Arabia and the U.A.E. welcomed Mursi’s overthrow by Egypt’s army a year later and, along with Kuwait, pledged about $15 billion in support to the new military-backed government.
“I don’t think that where we are today is a reflection of a lasting impact,” Yaser Abushaban, executive director for asset management at Dubai-based Emirates Investment Bank PJSC, said in a March 15 phone interview. “We are talking about a couple of basis points here or there. If that reflects increased risk, that’s very insignificant risk.”
The yield on Qatar’s 5.25 percent bond was at 2.67 percent today, compared with 2.58 percent on March 4 and 2.37 percent a year ago. The yield on Abu Dhabi’s 6.75 percent notes maturing in 2019 fell 10 basis points to 2.13 percent in the period, while that on Dubai’s 7.75 percent debt due 2020 dropped 29 basis points to 3.37 percent.
While the IMF projects Qatar’s economy will grow 5.9 percent this year, the fastest in the six-nation GCC, its 34 percent ratio of gross government debt to gross domestic product last year was second to Bahrain. The country’s budget surplus shrank 1.4 percent in this year’s fiscal budget versus last year’s.
Saudis and Emiratis could “cause quite a bit of inconvenience if they wanted to” by choking off the flow of fresh produce from the kingdom or goods shipped via Dubai, Salman Shaikh, director of the Brookings Doha Center, said by phone last month.
“The political situation in Qatar is in a more precarious position than that of the other GCC states,” Danny Reynolds, Dubai-based associate director at investment bank Exotix Partners LLP, said in e-mail April 15. “The international investment community view the GCC as a singular coherent unit and continued political discord with its neighbors would see Qatar further alienated.”