Investors are once again showing an appetite for Gulf bonds, which took a hit late last year on news of Dubai World's debt restructuring.
Positive outlook gives UAE bond market a lift
There is renewed confidence in the UAE's bond market. The news of Dubai World's US$26 billion debt restructuring in November not only depressed investors in the region but also its bond prices. Rumours that lenders were being asked to take haircuts on money they were owed pushed their value down further in the ensuing weeks. Now, fresh talk that a restructuring may happen without a haircut has breathed new life into the sluggish trade of UAE bonds.
The price for a bond due in 2011 issued by Nakheel - Dubai World's heavily indebted subsidiary - has risen almost 25 per cent in the past three weeks. In addition, the National Bank of Abu Dhabi (NBAD) on Saturday became the first UAE company to successfully pitch investors this year when its $750 million issue launched. The issue was quickly heavily oversubscribed, signalling an increasing appetite for Gulf debt.
The "entire region was so oversold", said Helen Holmes, a fixed-income fund manager with Emirates NBD. Prior to NBAD, the Saudi property company Dar Al Arkan was the only issuer in the region to test the market with a five-year, $450m sukuk, or Islamic bond. The company had to scale back its initial plan of raising $850m through the bond. "It is a sign of speculative confidence. We still don't know what will be the eventual outcome of Dubai World restructuring," said Hassan Awan, an associate at the asset management division of The National Investor in Abu Dhabi.
The lingering uncertainty has not stopped international and regional investors from scooping up UAE paper. Their interest coincides with a global rally in bonds, although Dubai issues have outperformed their peers. "Dubai has outperformed others simply because it had underperformed the most," said Nish Popat, the head of fixed income at ING Investment in Dubai. While the outlook is positive and several regional entities are already wooing international investors for fresh issues, the future trend will again be dictated by Dubai World.
"The market needs a confirmation soon," Mr Popat said. firstname.lastname@example.org