Unrest hits plans to raise cash

Emirates Airline and Arabtec pull bond issuances as the outlook for debt markets appears gloomy, but an issuance by IPIC shows demand remains for UAE debt.

Cost of borrowing rises in response to investor wariness

Gregor Stuart Hunter

Political unrest in the Middle East has raised the cost of borrowing for companies, leading two of the UAE's biggest corporate names to postpone planned bond issuances.

Arabtec Holding and Emirates Airline backed off plans to raise money, while the International Petroleum Investment Company (Ipic), proceeding with its bond issuance, was forced to pay a higher rate than if it had issued bonds a year ago.

Still, traders were relieved that Ipic - a highly rated, government-backed company - had successfully come to market. Sapnesh Varma, the head of bond trading at Abu Dhabi Commercial Bank, said the issuance could set the tone for debt markets for the year ahead.

"If it performs well, it'll put the region on a good footing," he said.

Ipic raised US$4.4 billion (Dh16.16bn) in bonds, paying a 1.08 per cent premium on existing five-year notes issued a year earlier, according to data from Bloomberg News. Bond yields are inversely correlated with price, so a higher yield indicates reduced demand.

Mr Varma said the turmoil in the region was putting international investors off.

"Most of the impact on bond issuances was probably because of the unrest and the problem we're seeing in the region," he said.

With the Gulf expected to need to refinance as much as $70bn of maturing debt this year, according to a recent research note from Standard Chartered, companies will be hoping to keep a lid on their borrowing costs.

Arabtec, a construction company, and Emirates both dropped planned bond issuances because of the darkened outlook for debt markets.

Arabtec shelved a $150 million convertible bond issuance because market conditions were "unfavourable", the company said. A rights issuance of 398 million shares was also delayed.