Qatari companies are taking advantage of declining borrowing costs as the Persian Gulf country with stakes in J Sainsbury Plc. and Volkswagen AG seeks to raise funds for expansion.
Qatar Telecom QSC hired banks last week to set up meetings with investors after the Chief Executive Officer Nasser Marafih said in May it may buy stakes in foreign operators. Qatar Islamic Bank SAQ September 30 raised $750 million from the sale of five-year Islamic bonds after receiving orders for $6 billion. Demand was higher than for Dubai’s sovereign issue. Qatar Aviation Lease Co. asked lenders to halve the interest margin on a $650 million loan, a person familiar with the transaction said September 23.
“The main driver really is the fact that the interest rate cycles are low,” said Kapil Chadda, Dubai-based managing director of financial institutions at HSBC Holdings Plc. “These guys are poised for continued growth, although it may be muted at this time. They feel it’s a good time to go to the market.”
Qatar, the world’s biggest producer of liquefied natural gas, cut the interest on overnight deposits on August 11, its first reduction in two years. The International Monetary Fund expects the Gulf state to post economic growth this year of 19 percent, making it the fastest-growing economy in the world.
Companies in the region are returning to the bond market after Dubai’s government raised $1.25 billion in a two-part bond sale. The emirate received orders of about $5 billion after roiling global markets last year as it sought to delay payment on $24.9 billion of debt and last month.
Bond sales in the six-member Gulf Cooperation Council states have dropped 20 percent to $18.5 billion this year from $23.2 billion in the year-earlier period.
“Capital raising across the region has been anemic year to date so there is considerable pent up demand,” Akber Khan, a director at Al Rayan Investment in Doha, wrote in an e-mail. “Now that investor sentiment toward the region has improved and investors remain starved for yields, regional fixed-income paper is increasingly attractive. So rising demand is being met with supply.”
The yield on Qatar’s five-year note due January 2015 dropped 68 basis points last quarter to 2.62 percent, according to Bloomberg prices. The extra yield investors demand from emerging market debt over U.S. treasuries narrowed 60 basis points in the period to 277, according to JPMorgan EMBI Plus EMBI + Sovereign Spread.
Dubai’s government, which doesn’t have a credit rating and had outstanding debt of AED105.47 billion ($29 billion) at the end of July, paid 6.7 percent on its five-year $500 million note and 7.75 percent on its $750 million 10-year bond. Qatar Islamic’s bond sold last week was priced to yield at 237.5 basis points above similar maturity midswap.
Qatar’s sovereign wealth fund, the Qatar Investment Authority, bought Harrods Ltd. department store this year and a stake in Agricultural Bank of China Ltd. The fund may invest $30 billion in 2010, Prime Minister Sheikh Hamad Bin Jasim Bin Jaber Al Thani said in March.
The country has the third-highest investment grade at Standard & Poor’s and Moody’s Investors Service with an AA and an Aa2 rating respectively.
Qatar’s government supported lenders last year after the worldwide financial crises cut property prices and caused stock markets to fall. The country purchased real-estate and equity portfolios of banks and took stakes of as much as 10 percent in some local lenders.
The QE Index of Qatar’s 20 leading companies has gained 11 percent this year after a 1.1 percent increase in 2009. The MSCI World Index has advanced 1 percent and Dubai’s benchmark index has lost 6.5 percent this year. Qatari companies posted average profit growth of 16 percent in the second quarter, according to data compiled by Bloomberg.
Qatar’s overnight deposit rate was lowered by 50 basis points, or 0.5 percentage point, to 1.5 percent. The U.S. Federal Reserve said September 21 it expects interest rates to stay “exceptionally low” for an “extended period.”
United Development Co., builder of a $14 billion real- estate project off the Qatari coast, plans to sell about $400 million of convertible bonds to fund entities including a facilities management unit, it said in August. Doha Bank QSC said in July it plans to sell bonds this year.
“The adage that a lot of bankers use is borrow money when you don’t need it,” said HSBC’s Chadda. “That’s the best time to borrow.” (Bloomberg)
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