Posted on February 17, 2012

Qatar’s biggest banks are returning to the international bond market after more than a year to meet funding needs as faster government spending to prepare for the 2022 Soccer World Cup bolsters loan demand.

QNB raised $1bn this week in five-year dollar-denominated debt at 3.375%, data compiled by Bloomberg show. Doha Bank may sell at least $500mn of notes this quarter, its chief executive officer said last month. The closely held International Bank of Qatar is considering as much of $750mn of debt in the third quarter, managing director George Nasra said on February 6.

The government, embarking on an $88bn investment plan to build bridges, railroads and hotels, expects a “big” jump in spending next fiscal year, Ibrahim al-Ibrahim, Economic Adviser to HH the Emir, said on February 9. Banks are lining up bond sales as the extra yield sought on the region’s debt over US Treasuries falls for the first time since October, JPMorgan & Chase Co data show. Lending in Qatar surged 28% in 2011.

“Given there is a window to issue in favorable market circumstances, they would want to strike now while the iron is hot,” Nick Stadtmiller, the Dubai-based head of fixed-income research at Emirates NBD, said in a phone interview on Monday. “There is a fair amount of pent-up demand because they didn’t issue last year.”

QNB paid less than the central bank’s 4.5% benchmark lending rate. In November, the nation’s banks charged clients 5.5% on loans maturing in three years or longer, central bank data show.

Qatar, the world’s fastest-growing economy of the last two years according to the International Monetary Fund, budgeted 40bn riyals ($11bn) for infrastructure projects for the 12 months ending March 31 and it won’t reduce this amount next fiscal year, HE the Prime Minister Sheikh Hamad bin Jassim bin Jabor al-Thani said on January 23.

The country will tender four tunnelling projects in April for a metro system in the capital city, each worth $2bn to $3bn, as well as contracts to build two metro stations worth $1bn each, Qatar Railways Development Co said on February 6. “The banks have differing motivations” for issuing debt, Akber Khan, an asset management director at Al Rayan Investment in Doha, said by e-mail on Sunday. “In general, it is to further strengthen balance sheets in anticipation of increased borrowing requirements in the coming quarters, largely public-sector driven, and to diversify sources of funding.”

The yield on the nation’s 4.5% bond due January 2022 has dropped nine basis points this month to 4.07% on Wednesday. Qatari credit-default swaps have fallen six basis points this month to 132, the lowest in the Middle East along with Abu Dhabi and Saudi Arabia, according to data provider CMA, which is owned by CME Group and compiles prices quoted by dealers in the privately negotiated market.

Developing-nation sovereign debt yields indicated by the JPMorgan Emerging Markets Bond Index dropped 35 basis points this year to 5.74% on February 15, the lowest level since August. Spreads over Treasuries narrowed 43 basis points to 384, according another index compiled by the New York-based bank.

Qatar Airways Network

Qatari domestic bank lending surged to 377.9bn riyals in 2011 from 294.8bn riyals a year earlier, central bank data shows. That 28% jump exceeds the previous year’s 16.8% increase. Lending at QNB, the country’s biggest lender, soared 47% last year, the bank reported last month.

The Doha-based lender is rated Aa3 at Moody’s Investors Service, its fourth-highest investment grade. It last issued debt in November 2010, raising $1.5bn in five-year notes at 3.125%.

QNB’s bond issue comes as it bids to buy Turkey’s Denizbank, a purchase it “hopes” to complete this year if “the price is right,” Chairman HE Yousef Hussein Kamal, who is also Qatar’s Minister of Economy and Finance, said on January 29. QNB’s bond sale “is likely to help with their acquisition ambitions,” Al Rayan’s Khan said.

Doha Bank, which delayed an offering last year as Europe’s debt crisis drove up emerging-market bond yields, is returning to the debt market for the first time since 2006, according to data compiled by Bloomberg. The lender hired Morgan Stanley and JPMorgan Chase to manage its planned issuance this quarter.

“The market’s assessment of how things are going in Europe is improving,” said Emirates NBD’s Stadtmiller. International Bank of Qatar plans to borrow as it boosts capital by 1bn riyals to meet growth plans, according to Nasra. The bank would issue bonds to increase long-term debt on its balance sheet, it said in November.

Economic growth in Qatar, the world’s biggest exporter of liquefied natural gas, will slow to 7% this year from almost 19% in 2011, according the median estimate of 11 economists compiled by Bloomberg.

Appetite for Gulf Arab debt has picked up this year. The region’s issuers have raised $8.6bn so far in 2012, compared with $926mn in the same period last year, according to data compiled by Bloomberg.

Dolphin Energy Ltd, which transports natural gas via pipeline from Qatar to the UAE and Oman, attracted eight times the amount sought in a $1bn bond sale this month, compelling the company to increase the offer size by $300mn. Qatar’s government issued $5bn of dollar-denominated notes in November, the second-largest sale in the six-nation Gulf Cooperation Council last year.

“New issues in the GCC, in particular the UAE have proven to be extremely well-received by investors, indicating that there is substantial scope for issuance,” John Bates, head of fixed income at London-based Silk Invest Ltd, said by email. “For most of 2011 the Qatar sovereign was widely seen as a ’safe-haven’ investment, and the Qatari banks should offer a decent yield premium to the sovereign.”

source: Gulf Times