Market conditions to drive local currency issuances in the Gulf states (By IFN)

Market conditions to drive local currency issuances in the Gulf states

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GLOBAL: High levels of liquidity in the Gulf has been greeted with a lack of enthusiasm by Gulf-based bankers as interest rates are driven even lower and pricing becomes more aggressive. According to industry analysts, volatility in US Treasury yields along with a softening in demand from investors for emerging market paper could cause a halt in new foreign currency issuances in the Gulf for the short-term. Analysts also expects there to be an increase in local-currency issuances as a result of longer-term effect of volatile foreign bond market conditions and high levels of domestic liquidity in the region. “An expansion of local currency issuance seems most likely in Saudi Arabia and Qatar, where a local currency yield curve is already well-established, or the government is keen to develop one,” said an industry player. He added: “As global investors are not looking to add any risk here, we are left with only regional investors who have excess liquidity to deploy.” Longer-dated bonds such as the Government of Qatar’s US$2.5 billion sovereign issuance, are said to have been the worst hit, with yields rising by 40bps between the 17-30th May, according to Thomson Reuters data. Data from Dealogic shows that the most recent Islamic deals for May 2013 to originate from the Gulf were both foreign currency issuances – one by the IDB with its US$1 billion Sukuk, and Dar Al Arkan’s US$450 million Sukuk.