Two Gulf Arab borrowers have attracted heavy investor demand for international bond sales in the past two weeks, but higher yield premiums are prompting many other potential issuers in the region to seek alternative funding sources.
US dollar bond issuance in the Gulf, conventional and sukuk, stands at about $17.3 billion year-to-date, up from $11.4 billion in the same period a year ago, according to data from Zawya, a Thomson Reuters company.
But the vast majority of this year’s total was issued before late May, when US Treasury yields began rising sharply on expectations that the US Federal Reserve would start cutting back its monetary stimulus this year.
Since late May, new international bond issuance has been modest, and most borrowers who have come to market appeared to have special reasons for wanting to raise funds quickly
Borrowers who need money less urgently have held off on issuing — and since general yield levels are still much higher than they were in May, borrowers are exploring options such as bank loans and tapping their own cash flows, which are healthy because of strong economic growth in the Gulf.
“With US yields still higher by 100 basis points from the May levels, immediate recovery to issued levels looks tough,” Biswajit Dasgupta, head of treasury and trading at Abu Dhabi asset manager Invest AD, said of the recent rise in Gulf yields.