Qatar gets over $35bn in orders as it markets jumbo bond

Qatar started marketing yesterday a US dollar-denominated bond issue that so far attracted over $35bn in demand, the latest indication of how the country has overcome a boycott imposed by some of its Arab neighbours.

“I can imagine that they might issue between $7.5 and $12.5bn. I think they will decide on how the books will develop. If there is heavy over-subscription like it was in April last year, then a larger deal will be likely,” said Sergey Dergachev, senior portfolio manager at Germany-based Union Investment.

Orders for the bonds topped $35bn before US markets opened, so the size of the orders could increase, another document issued by one of the banks leading the deal showed.

The five-year notes are offering an initial price guidance around 100 basis points over US Treasuries. The 10-year and the 30-year debt offers around 145 bps and 185 bps over the same benchmark.

Initial price guidance was 10 bps higher for the five-year tranche and 15 bps higher for the longer tranches.

Dergachev said the initial price guidance looked “attractive,” offering some 30 basis points of new-issue premium – the price an issuer is ready to pay over its existing bonds to attract demand for the new issuance.

Barclays, Credit Agricole, Credit Suisse , Deutsche Bank, QNB Capital and Standard Chartered have been hired to arrange the five- and 10-year notes, the document showed.

The Taiwanese branches of Credit Agricole, Deutsche Bank and Standard Chartered are joint bookrunners for the 30-year tranche, which is a Formosa bond – a type of debt security sold in Taiwan by foreign issuers and denominated in currencies other than the Taiwanese dollar.

Qatar, the world’s largest exporter of liquefied natural gas, rated Aa3 by Moody’s, and AA-(minus) by S&P and Fitch, does not need to raise financing. It forecasts a budget surplus of QR4.3bn ($1.18bn) in 2019, partly because of higher oil prices.

But improved market conditions, and the recent inclusion of Qatar and other Gulf countries in JPMorgan’s emerging-market government bond indexes might have prompted the sovereign to take advantage of global investor demand for Gulf debt.

“The timing is right to issue the bond,” Dergachev said.

Also, more than $10bn in Qatari debt is due next year, so a large debt sale could be used to pre-fund those maturities.

“I think it’s a little surprising that they are coming to market with a very large issue, given the limited budget financing needs,” said Timothy Ash, senior emerging markets strategist at Bluebay Asset Management.

“I guess this is in response to GCC index inclusion, and a response to increased demand for the region’s debt. This might be a broader regional trend which might cap any spread compression from GCC index inclusion, if it is just met by increased supply.”

Last year Qatar raised $12bn through a similarly structured bond deal, outdoing an $11bn debt sale by Saudi Arabia.

That deal was Qatar’s first test of international investor demand after the blockade imposed by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. They severed diplomatic and transport ties with Qatar in June 2017.

Partly thanks to rising energy prices, Qatar has largely overcome the economic impact of the boycott.

“Qatar is seen as an improving credit story – they have responded well to the economic blockade, pushing on with structural reforms, diversifying their trade, and improving their resilience,” Ash said.

Source from: The Peninsula