Arab Today, arab today gulf states may help fund firms
Last Updated : GMT 06:43:00
Arab Today, arab today
Arab Today, arab today

Gulf states may help fund firms

Arab Today, arab today

Arab Today, arab today Gulf states may help fund firms

Dubai - Arabstoday

Gulf Arab governments may be pressured into increasing sovereign borrowing next year to raise funds on behalf of state-linked companies, as wide credit spreads make raising corporate debt expensive. This year, Bahrain, Qatar and Dubai issued sovereign bonds, and all paid hefty premiums demanded by investors because of the turmoil in global financial markets. AA-rated Qatar paid a new-issue premium of about 40 basis points on the five-year tranche of its $5 billion (Dh18.36 billion) mega bond in November. Corporations have faced scepticism from investors, so the vast majority of the Gulf\'s non-sovereign bond issuance this year has been by banks or top-rated government-related entities (GREs), with many other potential borrowers forced to delay issuance plans until pricing improves. Drop in issuance Article continues below Middle East issuance of international bonds totals about $29 billion this year, according to a preliminary estimate by Thomson Reuters, compared to issuance of about $32 billion last year in the Gulf Cooperation Council alone. At the beginning of this year, analysts had expected 2011 volumes to be much higher. Most major corporations in the Gulf are government-owned or connected to the state in some way — for example, through large stakes held by sovereign wealth funds. So if market conditions remain tough, governments will be tempted to increase their sovereign issuance and then funnel some of the money raised to companies via cheap loans or other channels. \"The challenging macro environment globally has driven costs of funding significantly higher, and this is likely to raise the question of whether governments in this region should consider borrowing centrally on behalf of the GREs,\" said Chavan Bhogaita, head of the markets strategy unit at National Bank of Abu Dhabi. At the same time, the need for companies to issue bonds may soon become pressing. The region faces massive corporate refinancing needs next year, at over $50 billion, according to some estimates. Tapping the bond market has become more important as the Eurozone debt crisis has caused the international syndicated loan market to freeze up for all but the top credits. Saudi move Saudi Arabia may already be moving towards issuing debt in order to reduce the funding burden on companies. The Saudi Arabian Monetary Agency is talking with local and international banks with operations in the kingdom about issuing a riyal-denominated sukuk as early as in the first quarter of 2012, banking sources told Reuters. It is expected to be the country\'s first substantial issue of government debt for several years. Bond price movements in recent months show how attractive a strategy of central financing for corporations might be. The yield on AA-rated Abu Dhabi\'s $1.5 billion, 6.75 per cent sovereign bond due 2019 was at 3.25 per cent on Wednesday, having dropped about 75 bps since early October, when the Eurozone crisis took a turn for the worse. By contrast, AA-rated International Petroleum Investment (Ipic), a state-owned Abu Dhabi investment fund, had to pay through the nose when it reopened Gulf bond markets in October with a bumper three-tranche, $3.75 billion issue. The $1.5 billion, 5.5 per cent 10-year tranche was at 5.6 per cent this week, roughly flat from the time of issue. Abu Dhabi National Energy also paid a premium for its $1.5 billion deal in early December, of around 25-35 bps for the five-year portion and 20-30 bps for the 10-year tranche. Some believe new sovereign issuance could help lower financing costs for a wide range of companies, effectively setting a new benchmark for corporate fund-raising. \"Government bonds should help set new benchmarks,\" said one regional fixed income trader. \"Qatar sovereign would surely be able to raise money at lesser cost than say Qatar National Bank or Rasgas.\" But such a strategy of centrally financing companies\' debts would carry risks. Increasing government bond issuance could weigh on sovereign pricings, and by shielding companies from direct pressure in the capital markets, it might set back efforts to make company managements more efficient and accountable. \"This puts too much responsibility on the sovereign,\" the trader said, adding that governments should incentivise companies to improve their financial management and performance rather than giving them a safety net. Associated risks Martin Kohlhase, analyst at Moody\'s rating agency in Dubai, said: \"Corporates tapping the market individually rather than centrally help to increase transparency, promote accountability, and ensure the efficient use of capital when the price of debt is adequately reflecting the associated risks of the underlying credit. \"Central funding would hamper these efforts and might result in an increase of interest rates of the fund-raising entity depending on its capacity to raise debt.\" Bhogaita said a centralised funding strategy should only be a short-term solution. \"Otherwise there would likely be adverse consequences such as negative impact on the development of the regional bond markets and on investor sentiment, both of which would undo some of the valuable work done up to now by governments and issuers in the context of global capital markets.\"  

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today gulf states may help fund firms Arab Today, arab today gulf states may help fund firms

 



Arab Today, arab today
Arab Today, arab today Nohan Seyam designs beautiful accessories

GMT 20:02 2017 Tuesday ,21 February

Nohan Seyam designs beautiful accessories
Arab Today, arab today Tourism shows signs of recovery

GMT 09:59 2017 Monday ,20 February

Tourism shows signs of recovery
Arab Today, arab today Sarah Belamesh designs antiques of "ceramic"

GMT 19:45 2017 Monday ,20 February

Sarah Belamesh designs antiques of "ceramic"
Arab Today, arab today 11 family members dead in rebel push

GMT 07:57 2017 Tuesday ,21 February

11 family members dead in rebel push
Arab Today, arab today To probe sexual harassment claims

GMT 10:08 2017 Tuesday ,21 February

To probe sexual harassment claims
View News in Arabic - Business: مصارف
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today 57 monkeys carrying 'invasive' genes

GMT 16:00 2017 Tuesday ,21 February

57 monkeys carrying 'invasive' genes
Arab Today, arab today 63-Year-Old Woman Delivers Baby

GMT 12:35 2017 Tuesday ,21 February

63-Year-Old Woman Delivers Baby
Arab Today, arab today Small ponds have outsized impact

GMT 15:53 2017 Tuesday ,21 February

Small ponds have outsized impact
Arab Today, arab today Pluto's unruly moons

GMT 06:31 2015 Thursday ,04 June

Pluto's unruly moons
Arab Today, arab today Nissan enhances sales in most markets

GMT 14:08 2017 Monday ,20 February

Nissan enhances sales in most markets
Arab Today, arab today Competes Sweden and Germans by S90

GMT 22:36 2017 Thursday ,16 February

Competes Sweden and Germans by S90
Arab Today, arab today Ahmed Fahmy stresses he did not ignore singing

GMT 06:34 2017 Sunday ,19 February

Ahmed Fahmy stresses he did not ignore singing
Arab Today, arab today London to tax old cars

GMT 14:06 2017 Friday ,17 February

London to tax old cars

GMT 21:11 2017 Saturday ,18 February

Egypt to hold first session of Arab film festival

GMT 06:50 2017 Wednesday ,15 February

Tragic fluctuations of Bakhtiari's life revealed

GMT 12:22 2017 Monday ,20 February

Kanye West puts hijab-wearing model

GMT 20:41 2017 Wednesday ,15 February

Teach monkeys to recognize themselves in mirror

GMT 23:29 2017 Thursday ,16 February

Home built on sand castles-style costs $8m

GMT 14:51 2017 Monday ,20 February

Ways to acquire presentation skills

GMT 19:16 2017 Friday ,17 February

Aziz House ready to host the tourists

GMT 13:12 2015 Saturday ,09 May

Sheikh Sultan opens Sharjah Centre

GMT 12:39 2017 Monday ,20 February

newest smartphone another winner for Huawei

GMT 16:08 2017 Wednesday ,15 February

Shawsh reveals her collection "Jewelry of dreams"
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday