The era of jumbo Gulf bond deals is probably over -JPMorgan

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DUBAI, Sept 22 (Reuters) – Gulf governments continue to issue debt in high volumes, but deficit cuts and improved liquidity have reduced the urgency to raise money through so-called “jumbo bonds”, a senior JPMorgan banker has said.

In 2016 Saudi Arabia issued $17.5 billion bonds, which marked the beginning of an era of jumbo transactions in the region, as governments urgently needed to fill coffers after the 2014-2015 oil price collapse.

Jumbo bonds are generally meant as over $5 billion.

The Gulf continues to supply very large transactions – this year state-owned Qatar Petroleum sold $12.5 billion bonds.

But barring shocks like COVID-19, governments in the future are expected to cover their funding needs through more frequent and smaller deals, said Hani Deaibes, head of debt capital markets for the Middle East and North Africa at JPMorgan.

“Governments are trying to spread issuance through the year, trying to optimize pricing. They are now well established and have that flexibility”, Deaibes told Reuters.

“With lower financing needs, you don’t have to de-risk funding via large transactions and as such less need to do jumbo trades”.

Rebounding crude prices this year have reduced the oil-producing region’s thirst for debt, but some governments may continue to tap the markets to take advantage of low rates, sources have previously told Reuters.

Abu Dhabi, which issued $3 billion this month, had budgeted an $11.7 billion deficit for 2021, but that was based on an assumption of oil at $46 a barrel. Brent crude on Wednesday was trading at over $73 a barrel.

“Saudi Arabia has been gradually reducing its funding requirements, Abu Dhabi is in a very good position, Qatar has done the bulk of its large capex”, said Deaibes.

“Maybe Kuwait is the only one that – when they eventually get approval to raise debt – may decide to do a jumbo transaction since they haven’t accessed the market since their inaugural transaction”.

Kuwait issued $8 billion in 2017 but has since been unable to tap the markets because of a standoff between parliament and cabinet, which has blocked a new debt law.

“We’re now in the period of refinancing of those large deals that came out in 2016, 2017, so issuance volume should be sustained by refinancing and issuances from new entities as the market continues to evolve and irrespective of a reduction in fiscal deficits, at least for the coming few years”, Deaibes said.

Reporting by Davide Barbuscia and Steve Orlofsky

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