Qatar Telecom's bond yields are set for the steepest monthly advance in almost two years as acquisitions by the Middle East's second-largest phone company by revenue erode its cash holdings.
The yield on the state-run company's 2016 bonds, which are rated at Moody's Investors Service's sixth-highest investment grade of A2, has risen 20 basis points this month and is headed for the biggest gain since February last year, according to data compiled by Bloomberg.
That contrasts with little change for the HSBC/Nasdaq Dubai's Middle East Investment Grade US Dollar Sukuk/Bond Index.
Qatar Telecom, or Qtel, has spent US$3.27 billion this year boosting its stakes in mobile phone operators in Kuwait and Iraq.
Moody's said in June that investment in Kuwait's National Mobile Telecommunications Company, known as Wataniya, would "reduce Qtel's liquidity headroom" and was "credit negative".
The Qatari company is now looking "very closely" at Morocco, where a majority stake that France's Vivendi holds in Maroc Telecom "might be in play", Qtel's chief strategy officer Jeremy Sell said last month.
"Although the acquisition-related discussions are still in early stages, if the deal goes through, Qtel's cash cushion and finances would come under severe pressure," said Hemant Dharnidharka, the head of credit research at SJS Markets in Bangalore.
Qtel, the region's second-largest phone business after Saudi Telecom, posted a 31 per cent drop in cash and near cash items to 16.4 billion riyals in the third quarter, the first annual decline for the three-month period since at least 2005, according to data compiled by Bloomberg.
The telecoms company has $4.36bn of bonds and loans due in the next three years, the data shows.
The Doha-based company's 3.375 per cent notes due in October 2016 yielded 2.16 per cent yesterday, compared with 3.1 per cent on Tuesday for regional investment-grade debt.
Qtel benefits from its links to the Qatari government, which together with related state entities owns 69 per cent of the company.