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Middle East Credit Markets Brief: July 6 - July 20

Middle East Credit Markets Brief: July 6 - July 20

Middle Eastern debt issuances reach US$57.4bn in Q1 – Growth in GCC picks up –Topaz Marine issues bonds - Qatar refuses to accept GCC demands - Egypt raises rates - Oman Oil finalizes a US$2bn loan - Fitch revises outlook for Omani banks – Egypt receives loan tranche from the IMF

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Middle East debt issuances reach US$57.4bn during the first half of 2017, according to data published by Thomson Reuters. Middle Eastern investment banking fees totalled an estimated US$462.1mn n during the first six months of 2017, 15% less than the value of fees recorded during the same period in 2016. Debt capital markets underwriting fees totalled US$136.9mn, up 88% year-on-year and the highest first half total in the region since records began in 2000.

The Islamic finance market has gone into retreat after Middle Eastern energy company attempted to declare its bond issue unlawful, resulting in a legal battle to be resolved in a London court. Dana Gas told investors last month that it could not make payments on its US$700mn sukuk bond because its structure had been deemed unlawful under Emirati law. The United Arab Emirates company wants to restructure the bonds but its investors say the move runs counter to the English law under which the bonds are governed. According to the FT, since Dana Gas’s claim was made three weeks ago investors have bought just US$17mn of new syndicated sukuk issuance.

GCC

Growth in the Gulf states, particularly in their banking sectors, has been picking up despite the continually deflated oil prices, CPI Financial reported Tuesday. Non-core income recovery, a strong investment-led credit growth coupled with a soaring population were some of the key aspects helping prop up the budgets of Saudi Arabia, Qatar, and UAE lenders. Capital earnings were also improved significantly mainly as a result of public sector deposits, which in turn improved capital ratios for the lenders, indicated a report compiled by Al Masah Capital Limited, cited by CPI Financial.

 

Saudi Arabia

Saudi Arabia will cut crude oil shipments to its customers in August by more than 600,000 barrels per day to balance the rise in domestic consumption during the summer, while staying within its OPEC production commitment, a Saudi industry source told Reuters. "There is strong demand for our crude but we are sticking to our OPEC commitments," the source added. "In order to meet its OPEC quota and meet its domestic demand during summer, Saudi Arabia has made big cuts in allocations internationally by more than 600,000 bpd for the month of August.”

Thirteen local banks qualified to participate in Saudi Arabia planned issuance programme for a local currency sukuk, Saudi Arabia's finance ministry said quoted by Reuters. Alinma Bank assisted with structuring of the Islamic bonds, the ministry said in a brief statement which did not give further information. Finance minister Mohammed al-Jadaan told Al Arabiya television last week that local currency sukuk issues, designed to help Riyadh cover a large budget deficit caused by low oil prices, would begin this month. Besides Alinma, the other qualified banks are Alawwal Bank, Al Rajhi Bank, Arab National Bank, Bank AlBilad, Bank AlJazira, Banque Saudi Fransi, Gulf International Bank, Riyad Bank, Samba Financial Group, Saudi Investment Bank, National Commercial Bank and Saudi British Bank.

Saudi Arabia’s consumer prices dropped again in June, reflecting the nation’s worst economic slowdown since 2009 as the kingdom struggles to cope with low oil prices, Bloomberg reported. The economy shrank 0.5% y-o-y in Q1 amid lower oil output and cutbacks in spending to shore up public finances. However, the reinstatement of public sector benefits and bonuses, and the introduction of value-added taxes in 2018 should support a return of positive inflation, the agency’s report added.

United Arab Emirates

Adnoc, Abu Dhabi’s state-owned oil company, is set to float a stake in its services business and boost foreign investment. Abu Dhabi National Oil Company (Adnoc) said initial public offerings of minority stakes in some services businesses with “attractive investment and growth profiles” would support private-sector growth in the United Arab Emirates, according to the FT. It added that the public would be allowed to invest alongside Adnoc to benefit from future growth.

Dana Gas has been granted an extension to the UK court order stopping investors from taking legal action against the firm in the matter of its US$700mn sukuk, CPI Financial reported. However, the judge also put limits on what the company can do to affect its financial position, restricting asset sales, dividend payments, etc. A full court hearing in London may take place in September, before the October maturity date.

Topaz Marine, Dubai based vessel support company, announce it plans to offer senior bonds worth up to US$375mn with a five-year maturity. The company also announced a tender offer for its existing US$350mn 8.625% senior notes due in 2018. The firm has mandated Goldman Sachs International, HSBC and Standard Chartered as global coordinators for the issue, and First Abu Dhabi Bank and Pareto Securities as co-managers.

Topaz Marine, a Dubai-based offshore support vessel company, has given initial price guidance in the 9.25-9.5% area for a US$375mn five-year bond non-callable for two years, a document issued by one of the banks leading the deal showed. The senior unsecured, Regulation S, 144A bond is expected to price later on Wednesday. Goldman Sachs International, HSBC and Standard Chartered are the global coordinators of the deal, with First Abu Dhabi Bank and Pareto Securities as co-managers.

Qatar

The Qatari government refused to accept the diplomatic demands of the four-nation Saudi bloc, further escalating the dispute with its GCC neighbours. In the statement, the four countries - Saudi Arabia, the United Arab Emirates, Bahrain and Egypt -- expressed their "deep surprise" that Qatar rejected the 13 demands, including severing ties with the Muslim Brotherhood and shutting down its Al Jazeera news agency. The bloc said that its offer was now "null and void” and pledged new political, economic and legal measures against the Qatar.

The refinancing of a US$1bn loan by Doha Festival City, a retail and hospitality complex in Qatar, has been indefinitely postponed as a diplomatic crisis deters regional banks from doing new Qatari business, Reuters reported. The facility, coordinated by Doha-based investment bank QInvest, was marketed earlier this year to both Qatari and regional banks, including institutions in the United Arab Emirates. It was to have been larger in size than the original loan - perhaps around US$1.2bn, bankers quoted by Reuters said. Two Qatari bankers involved in the deal told the agency that the diplomatic crisis was the main reason for the deal being postponed, as it had reduced banks' appetite for the transaction.

 

Kuwait

Kuwait’s Aviation Lease and Finance Company (ALAFCO) asked commercial lenders to submit proposals for a US$300mn loan, Reuters reported. The three-year loan would be used to back aircraft purchases and for pre-payment on deliveries. KFH Capital, the main investment arm of Kuwait Finance House, is advising the company on the fundraising.

 

Egypt

Egypt's Central Bank unexpectedly raised its key policy rates by another 200bp, citing a worsening of the outlook for inflation as key concern. The North African country nevertheless held out the prospect of lower rates by saying it expects "a measured easing of the monetary stance" as soon as underlying inflation starts to moderate. The Central Bank of Egypt (CBE) has now raised its benchmark overnight deposit rate by 1,000bp to 18.75% since starting a tightening cycle in December 2015.

Egypt is to receive a second loan instalment worth US$1.25bn from the IMF very shortly, state news agency MENA announced. The IMF had said in May that there was a staff-level agreement to disburse the second instalment of its US$12bn programme based on Egypt's reform progress, but that its executive board first had to meet to sign off on it.

Egypt is standing by the list of demands it and other Gulf Arab countries proposed to Qatar and will keep sanctions against Doha in place, Foreign Minister Sameh Shoukry told his Kuwaiti counterpart according to Reuters. Shoukry said only way the crisis would be resolved was if Qatar fulfilled the demands, which include curtailing its support for the Muslim Brotherhood, shutting down the pan-Arab al Jazeera satellite TV channel, closing a Turkish military base and downgrading its relations with rival Iran.

Average yields on Egypt's six-month and one-year treasury bills fell in an auction amid high foreign participation, Reuters reported citing Central Bank data. The average yield on the 182-day bill fell to 21.679% from 22.278%, and the yield on the 364-day bill decreased to 21.706% from 21.993%. Foreign buying accounted for 50.4% of the sale, standing at EGP7.4bn (US$413mn), the head of public debt at the Finance Ministry Sami Khallaf was quoted as saying.

 

Iran

The European Commission has decided that Iran’s exports of hot-rolled coil to the continent will be subject to definitive anti-dumping duties, the Financial Tribune reported. According to a preliminary document, duties will also be slapped on imports from three out of four other countries involved in the investigation, namely Russia, Ukraine and Brazil. The duties range from 5.3% to 33%. The rate determined for imports from Iran stands at 23%.

 

Oman

Oman Oil Co, the Omani state-owned petroleum firm, has finalized a US$2bn loan financing, Reuters reported. The company signed a revolving credit facility of US$.1.15bn, with a five-year maturity, and has slightly amended the terms of an existing US$850mn revolving loan that matures in 2019, the source said. The loan was self-arranged, while the bank consortium includes Credit Agricole, Deutsche Bank, First Abu Dhabi Bank, HSBC, Natixis, Societe Generale, Standard Chartered and Sumitomo Mitsui Banking Corp.

Fitch Ratings has revised the outlook on five Omani banks - Bank Muscat (BM), HSBC Bank Oman (HBON), Ahli Bank SAOG (ABO), Bank Dhofar (BD) and Bank Sohar (BS) to negative from stable. The outlook on National Bank of Oman (NBO) remains stable. Fitch has also affirmed the Long-Term IDRs of all six banks. Fitch believes Oman has the financial flexibility, albeit weakening due to lower oil prices, to support its banking system. The fiscal policy response to the drop-in oil prices has not prevented a significant deterioration in public finances.

Oman Oil expects to close, within two months at the latest, a pre-export financing (PXF) loan of around US$1bn, Reuters reported. The state-owned petroleum company has hired Natixis and Societe Generale to lead the debt transaction, which is being marketed to other lenders. The loan is in the region of US$1bn, but the final size could be larger.

 

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