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Middle Eastern debt drought evaporates

The real estate sector has been particularly active in Qatar, with two companies finalising deals on the international debt markets. The increase in debt issuance is not only reserved to this sector, many corporates and sovereigns in the Middle East have recently flooded the markets with debt.

May 19, 2016 // 5:11PM

In Qatar, both Ezdan Holding and Barwa Real Estate have lined up debt issuances. The former has priced a US$500mn 5 year sukuk with a yield of 4.375%, equivalent to a spread of 333bp over midswaps.

Ezdan’s transaction was arranged by Mashreq, Barwa Bank, Emirates NBD and HSBC, who were joined by Abu Dhabi Islamic Bank in a bookrunner capacity.

Barwa Real Estate has signed a US$1.13bn 9-year financing agreement with a local bank, which will cover all of the company’s liabilities.

Although there has been a reduction in funding for real estate projects, according to Akber Khan, Senior Director of Asset Management at Al Rayan Investment, the larger and more established developers with strong track records are able to attract significant capital.

“The deals will likely be used to finance construction that is related to the Dubai 2020 expo and the Qatar World Cup,” said Anita Yadav, head of Fixed Income Research at Emirates NBD.

Real estate companies have not been the only active borrowers in the markets, as Yadav noted. Entities from a broad range of sectors including aviation and logistics, and sovereigns, have either recently issued or are lining up debt deals in the run-up to Ramadan.

The recent flurry of activity can largely be linked to the impact of persistently low oil prices on government revenues and liquidity. Many companies in the Middle East are owned or related to a sovereign.

“There has been a delayed start to the year, and many borrowers were scared to come to the markets in Q1 as a result of the financial situation in the region,” said Yadav.

In the past 5 months, there has only been around US$14bn to US$15bn issued, out of an expected US$35bn to US$40bn.

The unwillingness of corporates to come to the markets meant that when they did, loans proved to be the most popular choice by a long shot. According to data from Emirates NBD, in Q1 of this year only US$4.5bn was issued in bonds. This is in comparison to the US$24bn worth of loans singed in the same period.

Khan added that the loan markets have tended to dwarf the bond markets in the Middle East.

Despite this, the renewed willingness of Middle Eastern corporates to tap the markets has been accompanied by an increase in the utilisation of the bond markets.

“The last 4 weeks have seen an increasing amount of activity in the bond market.”

Yadav added that the bond market simply needed to be opened by a stable sovereign, in this case, Abu Dhabi with its US$5bn sovereign issuance, which saw massive demand.

Middle East Projects & Infrastructure Deals

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