Arabian Gulf property developers are raising the most since 2009 from bond sales as Dubai’s debt repayment agreements and record-low regional yields help restore investor confidence.
Majid Al Futtaim Holding, a UAE-based shopping-mall developer and operator, and Kuwait’s Al Argan International Real Estate were among companies that issued about $995 million in the first six months, according to data compiled by Bloomberg. The sales compare with $500 million in 2011 and $2.45 billion in the first half of 2009, the data show. Emaar Properties sold $500 million of seven-year Islamic bonds, one person familiar with the matter said on Thursday.
Gulf bonds have benefited from confidence Dubai will refinance financial obligations of its related entities and as investors seek safer-haven assets amid Europe’s financial crisis. Average yields on bonds from the six-nation Gulf Cooperation Council have dropped 99 basis points this year to a record 4.1 per cent on Wednesday, the HSBC/Nasdaq Dubai GCC Conventional US Dollar Bond Index show.
“The cost of issuance and the cost of debt have come down for a lot of these companies,” Yaser Abushaban, director of asset management at Emirates Investment Bank in Dubai, said by phone on July 9.
“The region as a whole is now being perceived as a better risk return prospect than Europe even on the sovereign level.”
Economic growth in the Gulf, home to three-fifths of the world’s oil reserves, will reach 5.3 per cent this year, according to International Monetary Fund estimates in April. That is above an expansion of two per cent in the US and a projected contraction of 0.3 per cent in the 17-country eurozone economies, the IMF forecast.
“In previous years, it was a very difficult environment to raise money full stop,” Khalid Howladar, senior credit officer at Moody’s Investors Service in Dubai, said by phone on July 9. “An overall improvement in the operating environment means it’s an easier market for real estate companies to raise finance.”
Emaar raised $500 million from Islamic bonds last year and the yield on the 8.5 per cent notes due on August 2016, declined 227 basis points this year to 5.9 per cent on Thursday, according to prices compiled by Bloomberg.
Borrowers from the GCC, which includes Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman, have sold $21 billion of bonds in the first six month of this year, Bloomberg data show. That compares with $10.5 billion in the first half of last year and $8.6 billion in same period of 2010.
Gulf bonds returned seven per cent so far this year, the HSBC/Nasdaq index show. By comparison, debt in the Middle East, which includes Lebanon and Jordan sovereign bonds, gained 5.9 per cent, according to the HSBC/Nasdaq Dubai Middle East Conventional US Dollar Bond Index.
In Saudi Arabia the passing of a mortgage law last week, after more than a decade in debate, will increase growth in the building and construction industry, ultimately benefiting developers, Moody’s Howladar said. The law will also help real estate companies in Saudi Arabia get funding for projects amid a shortage of homes estimated at 1.25 million by 2014, according to the kingdom’s ninth development plan.
Emaar, which along with other investors manages Jeddah-based Emaar Economic City, sold the Islamic bonds at a profit rate of 6.4 per cent, the person familiar with the matter said on Thursday. The yield on Majid Al Futtaim’s 5.85 per cent sukuk due on February 2017 fell 44 basis points last quarter to 4.4 per cent.
“This has been one of the best years for the region in terms of issuances just because the risk perception has improved for Middle East and Gulf assets, and there has been a search for yields globally,” Abushaban said.from khaleej times.