Qatar stuns debt market with record $9 billion bond issue

Qatar’s unprecedented US$9 billion Eurobond sale has pressed the reset button for the Gulf region’s debt market.

The country sold $9bn of bonds in three maturities on Wednesday, almost double the amount expected by analysts. The issue helped push this year’s offerings from the Middle East and North Africa, which includes Saudi Arabia and the UAE, to $29.3bn, already a record for the first half of a year.

“Nine billion is a helluva lot of bonds to put into the market and to some extent it is going to reprice the region,” said Abdul K Hussain, who helps oversee $1.5bn as the chief executive of Mashreq Capital in Dubai. “For guys like Saudi and Kuwait, and everybody else who has announced potential deals, it definitely means it’s very doubtful they would do anything for at least the next three or four months.”

Energy-exporting countries are increasingly turning to international capital markets following a halving of oil prices since 2014. Qatar is also in the second year of a $200bn infrastructure upgrade before hosting the 2022 World Cup.

The Qatar Interbank Offered Rate, which is used to price local-currency debt, rose to the highest level since January 2011 this week.

The average yield on Middle East bonds dropped 25 basis points this year to 4.8 per cent, according to JP Morgan indexes. The yield on the Abu Dhabi government’s 10-year bond sold last month was little changed yesterday afternoon.

Qatar’s bonds comprised $3.5bn in five-year notes priced to yield 120 basis points more than US Treasuries, the same amount in 10-year bonds at 150 basis points over Treasuries and $2bn of 30-year paper at a 210 basis-point spread.

“The fact that Qatar was able to supersize this deal on the basis of a huge order book is indeed impressive,” said Chavan Bhogaita, the head of market insight and strategy at National Bank of Abu Dhabi. “The transaction shows that investors still have appetite for high-quality paper from this region. However, the flip side of this is that some people are likely to question why the sovereign needed to upscale the deal by almost 100 per cent.”

This is the first sale in four years from Qatar, the world’s largest exporter of liquefied natural gas. Its budget deficit will widen to 5.2 per cent of national output this year, according to the median forecast of eight analysts surveyed by Bloomberg. Moody’s Investors Service rates the country Aa2, the third-highest investment grade.

The Qatari sale is the latest in a flurry of offerings from the Gulf. Already this week, Noor Bank, DP World, Emirates Islamic Bank and Etihad Airways and its partners have tapped the market for a total of almost $3bn. Saudi Arabia, last week, invited banks to pitch to underwrite a debut international bond issue.

“Raising $9bn in difficult macro conditions raises the confidence and morale of other sovereign issuers in the region who are in the pipeline, especially Oman and Saudi Arabia,” said Chirag Doshi, the Doha-based senior vice president of investments at Qatar Insurance, which put in a bid to buy Qatar’s bond.

* Bloomberg