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Middle East

Qatar surprises markets with record US$9bn bond

Despite Qatar’s record breaking bond surprising the markets, it is unlikely that there will be a large shift in the pricing of Middle Eastern debt unless the majority of investors that bought the bond were local. It is also unlikely to cause other issuers in the region from saturating domestic or international markets.

May 26, 2016 // 5:43PM

The Qatari sovereign has launched a US$9bn three tranche Eurobond, the largest ever such issuance of its kind from the Middle East and the first in four years from Qatar.

The transaction, originally expected to be around US$5bn, consisted of a US$3.5bn 5-year tranche at 120bp over US Treasuries, a second US$3.5bn 10-year note at 150bp over Treasuries, and US$2bn worth of 30-year paper at 210bp over Treasuries.

Pricing was tightened from initial thoughts, which were in the 125bp, 155bp and 215bp areas respectively, themselves down from the 140bp, 170bp and 230bp areas respectively.

Despite the size of the bond, it is unlikely that the issuance will affect the pricing of similar fixed income instruments across the Middle East.

“Qatar’s bond will not lead to a repricing of debt in the region,” said one senior banker who covers MENA Debt Capital Markets. They noted that it would likely provide a benchmark for future debt issuances across the Middle East.

However, the geography of the investors could impact pricing. Zakir Banatwala, Portfolio Manager at StratEdge Quant Investors said the size of the offering was shocking.

“Although positive, what will be interesting to see is the split in geography of investors. If the majority of the bonds were allocated to regional investors, overall that would be slightly negative for GCC issuers, as a lot of excess liquidity would have been soaked up by this bond issue,” he continued.

The recent flood of Middle Eastern debt on international markets seems set to continue, especially on the sovereign side, with Saudi Arabia and Kuwait both looking to issue a bond in the near future.

Despite some analysts believing that other issuers looking to tap the markets would now hold off on accessing foreign capital for the next few months, the banker believes otherwise.

“The bond will not cause other sovereigns with deals in the pipeline to hold off on tapping international markets,” the banker added.

However Banatwala stated that Qatar definitely took advantage of being a first mover. “My gut is the others will not be as lucky in terms of printing such a large size. Issue sizes of up to US$1bn or US$2bn should however, still get done pretty easily.”

Although he added that if international investors absorbed most of the issuance, it would make GCC issuers more confident in terms of appetite and demand for their bonds.

The bond demonstrates that there is still demand for high quality appetite for debt from the region. Qatar is rated ‘Aa2’ by Moody’s and ‘AA’ by Fitch and S&P Global Ratings.

However, while the international markets are unlikely to become tired of Middle Eastern debt, its future performance could raise questions.

HSBC, JP Morgan, MUFG and QNB are the global coordinators on the transaction, and were joined by Al Khaliji, Barclays, Bank of America Merrill Lynch, Deutsche Bank, Mizuho and SMBC as joint lead managers.

Middle East Deals

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