Abu Dhabi May Beat Saudi Arabia to End Lull in Gulf Bond Market

  • Oil-rich emirate set to banish slowest sales in eight years
  • Saudi Arabia plans debut international offering by end of 2016

In the end it may be Abu Dhabi, not Saudi Arabia, that defines Gulf Arab bond sales this year.

The oil-rich sheikhdom, which holds about 6 percent of the world’s proven crude reserves, is planning to sell an international dollar bond for the first time in seven years. In doing so, it may rekindle issuance across the six-nation Gulf Cooperation Council after the worst start to a year since 2008.

“Hopefully, this will get things started and get some supply into the market," said Abdul K Hussain, the chief executive officer at Dubai-based Mashreq Capital DIFC Ltd. “There will be a fairly diversified level of interest. If the deal is priced well, performs well and the market continues to be supportive, then you will get further new issuance."

The sale will be closely watched, not least in Saudi Arabia, which plans a debut offering as early as September. Nations in the oil-exporting bloc are grappling with a 60 percent collapse in crude prices over the past two years that’s curtailed government revenue and may push them to post a combined budget deficit of about $140 billion this year, according to estimates from Emirates NBD PJSC, Dubai’s biggest bank.

Abu Dhabi Sale

Abu Dhabi started meeting fixed-income investors this week. The sheikhdom, rated the third-highest investment-grade at Standard & Poor’s, last tapped the market in April 2009, selling $1.5 billion in 10-year securities.

Bond sales from the region, which includes the two biggest Arab economies of Saudi Arabia and the United Arab Emirates, have slumped 35 percent this year to $5.5 billion, according to data compiled by Bloomberg, as oil’s plunge boosted bond yields and kept issuers away.

Saudi Arabia, the world’s biggest oil exporter, is preparing for its debut dollar bond sale and may tap the markets as early as September, Minister of State Mohammad Bin Abdulmalik Al-Sheikh said this month. The timing of the bond sale will depend on market conditions. 

Potential issuers from the GCC will grapple with increasing borrowing costs as oil trades a third lower than a year ago. While the average yield on bonds sold by Middle East issuers dropped 26 basis points this year through Tuesday to 4.79 percent as crude recovered above $40 a barrel, it remains higher than the five-year average of 4.37 percent, according to JPMorgan Chase & Co. indexes.

The Kingdom of Bahrain, the region’s smallest economy, and the emirate of Sharjah in the U.A.E. are the only governments in the GCC to have sold bonds this year, raising a combined $1.1 billion.

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