x Abu Dhabi, UAEFriday 21 July 2017

Debt financing needs to be less next year - NBAD

National Bank of Abu Dhabi says it will be hard for the region to repeat this year's record debt sales as state refinancing slows.

National Bank of Abu Dhabi (NBAD), which surpassed Deutsche Bank as the Arabian Gulf's third-biggest debt underwriter for 2012, said it will be hard for the region to repeat this year's record sales as state refinancing slows.

About U$$40 billion of bonds will probably be sold in 2013 across the six-country Gulf Cooperation Council, said Fawaz Abu Sneineh, the head of NBAD's debt capital markets for. Issues jumped 54 per cent this year to $42bn, an all- time high, as Qatar sold its first Islamic bonds and government-owned Dubai companies refinanced debt. About half of the sales were sukuk.

"This year was a record for us, and we would like to maintain it," Mr Abu Sneineh said. "Next year, the level of refinancing will be less and the markets would be expected to correct at some point."

Dubai will need to repay or refinance $7bn next year, about 30 per cent less than in 2012, Bank of America Merrill Lynch estimates show. NBAD, which helped manage $3bn of bond sales for clients including Dubai's finance department, jumped 15 places among the region's underwriters from 2011, when it handled $563 million in sales.

Borrowing costs for GCC companies tumbled this year as economies expanded and state-linked businesses in Dubai restructured and repaid debt, boosting confidence in regional assets. Demand for GCC credit was boosted by investors seeking refuge from Europe's sovereign debt crisis.

The average yield on Middle East sukuk and bonds has dropped 159 basis points, or 1.59 percentage points, this year to 3.49 per cent December 21, according to HSBC/Nasdaq Dubai's Middle East US Dollar Sukuk/Bond Index. That compares with a 145 basis-point decline in JP Morgan Chase & Co's EMBI Global Diversified Blended Yield to 4.39 per cent.

NBAD is in advanced talks to manage issuances worth "a couple of billion dollars" next year, Mr Abu Sneineh said. The bank is also working on several other mandates that would raise more than $2bn with the help of other banks, he said.

The lender aims to take part in at least $10bn of transactions next year, he said. NBAD helped clients raise $15bn across the Middle East and North Africa in 2012, increasing issuances to 18 from four a year earlier, he said.

"Financial institution issuers will contribute substantially to the number of issuances, with each individual issue usually in the range of $500m to $750m," he said. Some companies may decide to sell debt for the first time to take advantage of low interest rates and make up for a shortage of equity and loan funding, according to Mr Abu Sneineh.

* Bloomberg News