Qatar Sells $10 Billion in Bonds in Test of Persian Gulf Demand -- Update
08 April 2020 - 4:43AM
Dow Jones News
By Rory Jones in Dubai and Avantika Chilkoti in London
Qatar sold $10 billion in U.S. dollar-denominated bonds on
Tuesday, the first Persian Gulf state to tap the debt markets since
the headwinds of the coronavirus pandemic and a collapse in oil
prices tightened budgets across the region.
The sale, a test of demand among investors for further bonds
from other oil-exporting Gulf countries, came after Saudi Arabia
last month launched an oil-price war with Russia, causing a
collapse in prices and driving up the cost of borrowing.
Qatar's three-tranche bond sale received $44 billion in orders,
according to a document from one of the banks on the deal. It
indicates a recovering investor appetite for risk after a recent
selloff and could pave the way for other Gulf states to raise
debt.
Qatar didn't respond to a request for comment on the issue,
which is expected to close later Tuesday.
Most Gulf countries have sought to diversify their economies
away from oil in recent years but still depend on crude sales to
fund their budgets. They are expected to issue billions of dollars
of debt to help fund spending predicated on higher oil prices,
bankers say.
Expenditures are also expected to increase as governments roll
out stimulus measures to support economies that are under lockdown
to stem the spread of the new coronavirus.
"This is a significant tailwind for the region," Meno Stroemer,
fund manager at Switzerland-based Fisch Asset Management, said of
Qatar's successful sale.
Members of the Gulf Cooperation Council, or GCC, a group of
nations including Saudi Arabia, Qatar, the United Arab Emirates,
Oman, Bahrain and Kuwait, have become some of the biggest issuers
of sovereign debt globally over the past five years since the
previous oil-price crash in 2014. That has raised concerns about
whether Gulf states can service growing debts and prompted some
investors to bet against the bonds.
Doha was seeking to get out first before a glut of further
issuance, said Peter Kisler, portfolio manager at North Asset
Management, who put in an order for the Qatari sovereign bonds.
"These issues tend to be large, so if five other countries have
issued $10 billion each before you, it'll be more difficult to get
something done than if you're the first," Mr. Kisler said.
Saudi Arabia last month said it would tap capital markets to
help fund a stimulus package prompted by the country's coronavirus
lockdown. As a result, King Salman has approved raising a
self-imposed limit of debt to gross domestic product from 30% to
50%. The U.A.E., Bahrain and Oman have also launched stimulus
packages and are likely to issue bonds this year.
Saudi Arabia has politically and economically isolated Qatar
since 2017 and been accused of using the capital markets as a tool
in its diplomatic standoff. It rushed out an $11 billion bond sale
in April 2018 as Qatar also was courting investors. Riyadh has said
it raised bonds for its budget requirements. Despite the Saudi
sale, Qatar two days later sold $12 billion of bonds.
On Tuesday, Qatar sold U.S. dollar-denominated bonds in tranches
of five, 10 and 30 years. It priced the 5-year tranche at 300 basis
points over U.S. Treasurys, the 10-year at 305 basis points over
U.S. Treasurys and the 30-year at a yield of 4.4%. The 10-year
priced 35 basis points higher than bonds of similar maturities
already in the market.
Since oil prices collapsed last month, yields of Qatari and
Saudi bonds maturing in 2029 have widened from roughly 1 percentage
point above U.S. Treasurys to nearly three times that level,
according to investors.
The Saudi-led Organization of the Petroleum Exporting Countries,
or OPEC, is expected to convene a virtual meeting on Thursday with
other oil-producing nations including Russia, aiming to negotiate a
truce in a Saudi-Russia fight for market share. That feud has
helped contribute to a 70% drop in oil prices since early
March.
Bond investors said Saudi Arabia and other Gulf states might
wait to see whether a deal is reached that pushes up oil prices
before launching debt issuance, hoping to get a better deal.
"They will all tap the market at some point," said Zeina Rizk,
executive director at Arqaam Capital in Dubai. "Some might wait
till the oil feud gets resolved. Qatar is probably taking the
first-mover advantage."
Write to Rory Jones at rory.jones@wsj.com and Avantika Chilkoti
at Avantika.Chilkoti@wsj.com
(END) Dow Jones Newswires
April 07, 2020 14:28 ET (18:28 GMT)
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