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Supersized Eurobond: have Qatar’s finances been hit harder than we thought?

Abu Dhabi, 26 May 2015
Qatar sold $9bn of Eurobonds in a 3-tranche deal yesterday marking the biggest-ever bond issue from the Middle East (Click here to read more). The fact that Qatar was able to 'supersize' this deal on the basis of a huge order book is indeed impressive, although investors may have been wondering if they would get a larger portion of fries and a bigger drink as part of the deal too! To some extent 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% from the planned 5bn - does it imply that the nation’s finances are more severely impacted by the oil price decline than we had assumed? Why else would a sovereign as financially robust a Qatar need to take 9bn off the table in one single deal? Of course it is possible to put both positive and negative spin on this deal, but the underlying reasoning for why Qatar decided to go big on this occasion will certainly be of interest to investors and other market participants alike. It will be interesting to see how this situation pans out. Watch this space…

Chavan Bhogaita, NBAD's Head of Market Insights & Strategy
Chavan.Bhogaita@nbad.com

Saudi Aramco Said to Appoint JPMorgan, HSBC for Debut Bond Sale

Abu Dhabi, 25 May 2015
Despite being speculation at this stage, today's Bloomberg article is certainly noteworthy and while the initial focus seems to be on a Riyal denominated deal, there is also talk about Aramco setting up a USD based program which could lead to USD denominated sukuk being issued in the international markets.

Of course, many would argue that we’ve heard all this before and nothing has yet materialised, however when taken in conjunction with recent announcements regarding a planned IPO of a minority stake in Aramco, various Ministerial changes, and other broad reforms within KSA, we would argue that the probability of Aramco finally doing a hard currency sukuk issue is higher than it has been before. Watch this space for further updates.

Chavan Bhogaita, NBAD's Head of Market Insights & Strategy

 

Perspective: Have Abu Dhabi Spending Cuts Exacerbated Oil-Led Slowdown?

Abu Dhabi, 18 May 2015
In a recent article - ‘Abu Dhabi Spending Cuts May Have Exacerbated Oil-Led Slowdown’ – the international news agency Bloomberg suggested that AD may have hit the brakes too hard. Given the sheer magnitude of the oil price shock, dropping from a peak of circa $147 to below $30 per barrel, surely the reaction that we have seen from Abu Dhabi, and indeed other Gulf states such as KSA, is understandable. In fact shouldn’t we be welcoming many of the tangible steps being taken to adapt to the challenging environment as they will put the Emirate and indeed the country in a far stronger and more sustainable financial position in the longer term? I certainly do.

The people who criticise Abu Dhabi for putting the brakes on too hard, ask why the returns generated by ADIA’s investments are significantly lower than many other SWFs around the world, etc, don’t in my opinion understand that prudence is a key element of Abu Dhabi’s DNA. It is such prudence, combined with great vision, that has put Abu Dhabi in the position of being one of the strongest sovereigns in the world. And frankly, given the huge uncertainties that surround us – not just in this region but globally – I would rather have the leadership here be prudent and focus on capital preservation than overextend themselves and end up in the fiscal mess that may other nations find themselves in.

The observers who criticise Abu Dhabi for being too prudent also criticise Dubai for being too ambitious and too aggressive with its growth plans. Bottom line is that while commentators find it easy to criticise regardless of the direction being taken, the leaders of such Emirates and nations have a real challenge on their hands in terms of balancing growth and ambition with financial prudence and capital preservation. There is no simple answer and no magic wand that can be waved that leads to a 'happily ever after' scenario.

Chavan Bhogaita, NBAD's Head of Market Insights & Strategy