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Middle East Credit Markets Brief: May 11-25

KSA, US sign multi-billion dollar trade deals – IMF warns KSA on tightening monetary policy – SEC in the market for new loan – UAE loan demand increases – Dubai secures US$3bn for new airport – QIB launches US$750mn sukuk – Al Baraka prices perpetual – KNPC signs US$6.25bn loan – Oman places US$2bn sukuk – Bank Muscat launches sukuk programme – IMF boosts outlook on Jordan – Egypt raises US$3bn in international markets, boosts sentiment around deficit – Iran revives Eurobond ambitions

May 26, 2017 // 4:45PM

 

Saudi Arabia

OPEC announced this week that it will extend oil output cuts by nine months to March 2018, a proposal that earlier this month won the backing of most of the Gulf producers including Saudi Arabia and Kuwait. The cuts are also likely to be shared by a dozen non-member states including Russia, which earlier this month agreed to the cuts with Saudi Arabia. Oil prices pushed back above US$50 per barrel on the back of the news.

Saudi Arabia and the US penned multibillion-dollar agreements on the back of Donald Trump’s maiden state visit to the Middle East in mid-May. The Public Investment Fund, the Kingdom’s sovereign wealth fund, agreed to commit US$20bn to an infrastructure investment fund with Blackstone Group LP, with the figure expected to eventually double in size with money raised “from other investors.” Saudi Aramco said it signed 16 accords with 11 companies valued at about US$50bn, while the US and Saudi Defence Ministries also negotiated a US$110bn deal for defence equipment, according to a White House transcript on Friday.

Saudi Arabia raised its holdings of U.S. Treasury bonds by billions of dollars ahead of President Donald Trump’s visit. Saudi holdings of U.S. government bonds climbed to a one-year high of US$114.4bn in March from a low of US$89.4bn last September, the most recent data from the U.S. Treasury Department shows.

The Saudi Ministry of Civil Service has asked all ministries and government departments to get rid of all expatriate workers within three years, according to deputy minister Abdullah Al-Melfi. “There will be no expatriate workers in the government after 2020,” he was quoted as saying in the Saudi Gazette earlier this month. The Gulf state has been looking at ways of boosting employment among nationals.

The IMF warned Saudi Arabia on last week not to tighten fiscal policy too fast, saying excessive cuts to the government's budget deficit could hamper the economy. Tim Callen, head of an IMF team meeting with Saudi officials, said Riyadh's goal of balancing its budget was appropriate, but added that the target of a balanced budget, however, does not need to be met in 2019 as set out in the Fiscal Balance Programme given Saudi Arabia’s strong financial asset position and its low debt. "A more gradual fiscal consolidation to achieve budget balance a few years later would reduce the effects on growth in the near term while still preserving fiscal buffers to help manage future risks," he was quoted as saying by Reuters.

Saudi Arabia reported a first quarter budget deficit of SAR26.2bn (US$7bn), the Ministry of Finance said. Revenue for the three months to March rose 72% from a year earlier to SAR144.1bn, while expenses fell 2.7%. The Kingdom is shifting to quarterly statements on the economy -- having typically reported only annually – to promote transparency. Saudi Arabia’s budget was deemed as “expansionary but not significantly” and in line with plans to balance state finances by 2020, Finance Minister Mohammed Al-Jadaan told Bloomberg. “Where the expansion will come is from the efficiency,” Al-Jadaan said in an interview in Jeddah on earlier this month. “We are working on that -- reducing a lot of the fat that is not necessary and then utilizing that in more productive investments.” The target for a balanced budget is central to the kingdom’s long-term plan to diversify the economy, which includes creating the world’s biggest sovereign wealth fund and privatizing some state assets.

Gulf International Bank (GIB) was granted approval by Saudi Arabian authorities to set up a local branch in the Kingdom. Currently, GIB operates its banking activities in the Kingdom of Saudi Arabia through its regional branches in Riyadh, Dhahran and Jeddah. This comes after Citi was given an investment bank license 13 years after it initially left the country.

Saudi Electricity Company (SEC) is said to be in the market for a US$1bn syndicated loan, according to Reuters. The company has send out a request for proposals for a 5-year bullet loan after considering the bond market. Some of the proceeds from the loan will likely be used to refinance a 5-year US$1.5bn loan secured from the Industrial and Commercial Bank of China last year.

The Saudi government is expected to re-issue local debt this quarter or next, Finance Minister Mohammed al-Jadaan said earlier this week. International debt, local debt and the government’s financial reserves are set to be the main funding sources for the state budget, with last October’s suspension of monthly domestic bond issuances expected to be lifted shortly.

Saudi Aramco plans to invest of up to US$30bn in its U.S. subsidiary Motiva Enterprises LLC, the company said in an announcement at a business summit in Saudi Arabia. The company said it would invest US$12bn in a project to expand refining capacity at Motiva's Port Arthur refinery and to extend Motiva's operations in the petrochemical value chain, with likely additional investment of US$18bn expected by 2023.

 

United Arab Emirates

The Dubai government has secured a US$3bn longer-term loan to finance the expansion of its airport. The infrastructure project is just one of three large initiatives being developed by the Dubai government including the World Expo 202 and the Dubai metro system. The funding programme includes a US$1.63bn 7-year conventional loan and a US$1.48bn equivalent 7-year ijara facility denominated in UAE dirham. Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Bank of China, Citibank, Dubai Islamic Bank, First Abu Dhabi Bank, HSBC, Industrial and Commercial Bank of China, Intesa Sanpaolo, JPMorgan, Noor Bank and Standard Chartered were mandated lead arrangers and bookrunners on the transaction, with HSBC acting as financial adviser.

ICBC Dubai issued a dual-tranche international bonds worth US$700mn. The first tranche was for US$400mn maturing in 2022 with a 3MLIBOR+0.87% coupon. The second part was worth US$300mn maturing in 2020 with a 3MLIBOR+0.77% coupon. Bonds were sold at a price of 100% and BNP Paribas, Citigroup, Credit Agricole CIB, ICBC, Standard Chartered Bank managed the deal.

Loan demand in the UAE increased by roughly 7.6% during the first quarter of 2017, according to a Credit Sentiment Survey conducted by the country's Central Bank. Sectorally, the survey identified strong increases in demand across the construction, manufacturing and financial services (excluding banks), transportation, and wholesale trade sectors, while there has been a softening of demand in the electricity, gas and water segments.

 

Qatar

Qatar Islamic Bank (QIB) signed a QAR3.4bn (US$925 million) structured Shari'ah-compliant financing facility with Gulf Drilling International Limited QSC (GDI) in mid-May. The facility will be used to re-organise the company’s debt and further enhance its operational and financial performance. The company is also working on a fresh sukuk. Citibank, Emirates NBD Capital Bank, HSBC, Noor Bank, QInvest and Standard Chartered Bank have been mandated to lead the sale, according to a note from the country’s stock exchange.

Qatar Islamic Bank (QIB) issued international sukuk for US$750mn maturing in 2022 with a 3.251% coupon. Notes were sold at a price of 100% with an initial yield of 3.251% while the book orders reached US$1bn. Citigroup, Emirates NBD, HSBC, Noor Bank, Qinvest, Standard Chartered Bank managed the deal

Qatar International Islamic Bank (QIIB), Qatar's third largest listed Islamic bank by assets, has appointed banks ahead of a potential US dollar-denominated sukuk, Reuters reported earlier this month.  However, the lender’s Islamic bond is not likely to occur before Ramadan that this year begins at the end of May. The planned bond sale would follow QIIB's decision to renew a sukuk issuance programme of up to US$2bn.

Qatari real estate developer Ezdan Holding is in the market for a new syndicated loan, according to sources. The size of the loan ranges between US$350mn-500mn, but it is unclear whether the deal will be finalised before Ramadan.

 

Bahrain

Central Bank of Bahrain (CBB) announced that the monthly issue of the Sukuk Al-Salam Islamic securities, has been oversubscribed by 205%. Subscriptions worth BHD88mn were received for the BHD43mn issue, which carries a maturity of 91 days and 2.20% coupon.

Al Baraka Banking Group priced a US$400mn perpetual NC5 sukuk carrying a MS+6.014% coupon this week. The AT1 perpetual notes were priced at par. Bank ABC, Dubai Islamic Bank, Emirates NBD, KFH Capital Investment Company, Noor Bank, Qinvest, and Standard Chartered Bank managed the trade.

 

Kuwait

Kuwait joined Saudi Arabia and Russia in supporting an extension of oil-output cuts by OPEC and other global producers through the first quarter of 2018 to help trim global stockpiles. Extending the cuts at already agreed-upon volumes is needed to reach the goal of reducing global stockpiles to the five-year average. Oman, a non-OPEC producer like Russia, expressed support the same day for curbs to continue until the end of March 2018.

In a sign of continued GCC banking sector consolidation, Kuwait Finance House KSCP is reportedly considering buying Ahli United Bank BSC’s Kuwaiti operations as it seeks to expand in the Persian Gulf state, according to sources quoted by Bloomberg. KFH, as the lender is known, is working with a financial adviser on the talks, the people said, asking not to be identified because the information is private. Discussions between the two banks are informal and Bahrain’s Ahli United isn’t running a formal sale process, the people said. There is no guarantee that a deal will take place and final agreements haven’t been reached with any of the parties, they said.

National Bank of Kuwait issued international bonds for US$750mn maturing in 2022 with a 2.75% coupon. The notes were sold at a price of 99.491% with an initial yield of 2.86%. Citigroup, National Bank of Abu Dhabi, HSBC, JP Morgan, NBK Capital and Standard Chartered Bank managed the deal.

Kuwait National Petroleum Co (KNPC) signed a US$6.25bn loan with international banks to back its planned Clean Fuels project this week. The landmark financing package was backed by seven export credit agencies including Korea Trade Insurance Corporation (K-Sure), the Export-Import Bank of Korea, SACE, Japan Bank for International Cooperation, Nippon Export and Investment Insurance, Atradius Dutch State Business N.V. and UK Export Finance.

 

Oman

Oman Electricity Transmission Company issued international bonds for US$500mn maturing in 2027 with a 5.196% coupon. The notes were sold at a price of 100%. Bank Muscat and JP Morgan acted as joint bookrunners.

The Omani sovereign is looking to raise up to US$3.6bn from a group of Chinese lenders, according to Reuters. The unsecured deal, which is being managed by Bank of China, China Development Bank, and Industrial and Commercial Bank of China, will carry a tenor of 5-years and all-in pricing of LIBOR+190bp.

Bank Muscat’s Meethaq Sukuk Programme, which features its debut Series 1 5-year OMR25mn sukuk and includes a green shoe option of a further OMR25mn, was opened for subscriptions this week. All the regulatory approvals are in place for the programme, which will be open to all Omani and Non-Omani individuals as well as institutional investors.

National Finance Company plans to raise OMR45.8mn (approx. US$118mn) through a new rights issue and perpetual bond sale in a bid to raise fresh funding to finance a buyout of Oman Orix Leasing Company. The bond is expected to be roughly OMR18.2mn in size and sold as a private placement, according to a regulatory filing.

Oman issued a sukuk worth US$2bn maturing in 2024 with a 4.397% coupon, a move intended to front-load the sovereign's financing requirements for the following fiscal year. Notes were sold at a price of 100% with an initial yield of 4.397%. Citigroup, Dubai Islamic Bank, Gulf International Bank, HSBC, JP Morgan and Standard Chartered Bank managed the deal.

 

Jordan

IMF projects Jordan’s real GDP to grow by 2.3% in 2017. According to Martin Cerisola, leader of the IMF team visiting Amman to start discussions on Jordan’s economic programme real GDP growth was 2% in 2016, 12-month inflation accelerated to 4.3% in March 2017 before receding to 3.5% in April, and the current account deficit rose to 9.3% of GDP in 2016.

 

Egypt

Egypt sold US$3bn in Eurobonds this week, spread across five, 10 and 30-year maturities. The country sold US$750mn in 5-year notes at 5.45%, US$1bn in 10-year notes at 6.65%, and US$1.25bn in 30-year notes at 7.95%. Orderbooks for the trade closed at just over US$11bn. BNP Paribas, Citigroup, JP Morgan (B&D) and Natixis led the sale.

Egypt’s inflation rate fell for a third straight month, giving the government breathing room as it prepares to accelerate reforms that caused prices to surge and weakened the pound by more than half against the US dollar. Consumer prices rose 1.7% in April from a month earlier, the slowest pace since October before the Central Bank floated the currency and raised interest rates.

The Central Bank of Egypt raised its key interest rates by 200bp on last week, citing stronger economic growth and falling unemployment, confounding the expectations of economists who estimated rates were unlikely to change. The bank’s Monetary Policy Committee hiked its overnight deposit rate to 16.7% from 14.75% and its overnight lending rate to 17.75% from 15.75%, it announced in a statement. This was the bank's first increase in rates since an aggressive hike of 300bp in November.  As a result, the yield on the five-year bond rose to 18.760% from 17.357% at the previous auction, while the yield on the 10-year bond increased to 18.652% from 17.244%

The Central Bank of Egypt (CBE) will issue short-term treasury bills totalling EGP12.2bn to help bridge deficit spending. The first would be at a value of EGP6.2bn, to mature in 91 days. The second will be worth EGP6bn, to mature in 266 days. Earlier this month the Bank cancelled the sale of its seven-year treasury bonds at an auction. The average yields on the three-year bonds meanwhile rose to 17.360% 17.229% at the last similar auction. The central bank hasn’t explained why the auction was cancelled

Arab Petroleum Pipelines Co (SUMED) has reportedly inked a US$300mn 6-year loan agreement with National Bank of Kuwait's Egyptian subsidiary, according to a report from Reuters. Proceeds from the loan will help the company fund the development of the Ain al-Sokhna LNG project set for completion in 2019.

Egypt's budget deficit for the first nine months of the 2016-17 fiscal year dipped to 8% of GDP from 9.4% during the same period last year, bringing the government forecast for the next fiscal year down to 9.1% from April’s expectation of 10.9%. Egypt is implementing sweeping reforms that include cutting subsidies and raising taxes as part of a three-year US$12bn IMF lending programme. 

Iran

The government of Iran will hit the international bond market after a material improvement in risk, according to the Governor of the Central Bank. Valiollah Seif told the Fars News Agency this week that the country will issue bonds in the international markets "when we become certain that there is demand for our debt."

Middle East

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