Lifting pandemic restrictions, coupled with profitable vaccination rollouts within the Gulf and an enhancing financial outlook, supported a rebound in mortgage and bond exercise within the Center East within the first half of 2021
Issues are wanting up for debt markets within the Center East. In June, the World Financial institution raised 2021 financial development forecasts for the Center East and North Africa to 2.4%, up from 2.1% in January, as vaccination applications within the Gulf states noticed economies reopen and recovering oil costs carry exports.
General Issuance by worth Q1 2019 – Q2 2021
Instrument sort: All Use of proceeds: All
Location: CEEMEA and Center East and Turkey Sectors: All Sectors
This stabilizing macro-economic image has given debtors and lenders the boldness to return to market after a risky 2020. Issuance of excessive yield and funding grade bonds and leveraged and non-leveraged loans throughout the Center East and Turkey totaled US$152 billion in H1 2021. This was up barely from the identical interval final 12 months, when figures reached US$150.9 billion—skewed by a spike in Q2 2020 exercise as issuers raced to shore up stability sheets amid accelerating COVID-19 disruption—and a transparent enchancment on the US$106.6 billion of issuance recorded in H2 2020.
Inspired by the enhancing market backdrop, issuers noticed a window to lift giant sums of capital at engaging charges. Qatar Petroleum, for instance, raised 4 bond tranches in June 2021 price a mixed US$12.5 billion, with coupons starting from 1.375% to not more than 3.3%.
Common company issuance of US$100.7 billion within the Center East and Turkey accounted for the majority of proceeds in H1 2021, however debtors within the area additionally took benefit of favorable market situations to refinance present debt, with refinancing issuance of US$18.7 billion representing roughly 12% of bond and mortgage exercise.
When refinancing, debtors have been capable of push out debt maturities and lock in decrease pricing. The Abu Dhabi Nationwide Vitality Firm raised two US$750 million senior unsecured bonds in April 2021, maturing in 2028 and 2051, with coupons of two% and three.4%, respectively. The proceeds will likely be used to refinance a sequence of present bonds priced within the 3.625% and 5.875% vary and maturing between 2021 and 2023.
M&A and restructuring add to momentum
Along with strong refinancing and normal proceeds exercise, a reviving M&A market and rise in restructuring exercise additionally contributed to the regular issuance recorded this 12 months.
M&A deal worth within the Center East climbed from US$32.1 billion in H2 2020 to US$57.6 billion in H1 2021. Center East deal figures have been boosted by a sequence of mega offers throughout a variety of sectors. The US$2.2 billion merger between Qatari banks Masraf Al Rayan and Al Khalij Industrial Financial institution in January 2021 and the Saudi Arabian oil group Saudi Aramco’s US$12.4 billion divestment of a 49% stake in its pipelines enterprise to US-based EIG World Vitality Companions in June 2021 are among the many jumbo transactions up to now this 12 months.
Rising deal exercise boosted debt issuance for offers within the area. Issuance supposed for M&A and buyouts within the Center East and Turkey from excessive yield and funding grade bonds and leveraged and non-leveraged loans surged previously 12 months, from simply US$110 million in Q1 2021 to US$11.7 billion the next quarter. Issuance for M&A and buyouts for H1 2021 is up greater than four-fold from the US$2.9 billion posted in H2 2020.
M&A is anticipated to supply a fertile pipeline of debt financing alternatives by way of the remainder of 2021 and into 2022. For instance, in accordance with Debtwire Par, the Saudi Telecom Firm is in talks with home lenders for a US$1.3 billion-equivalent mortgage to again the acquisition of a 55% stake in Vodafone Egypt.
Restructuring issuance, in the meantime, noticed an uptick of exercise within the Center East and Turkey—a uncommon incidence within the area. After posting US$560 million of quantity in Q2 2020, restructuring issuance jumped to US$2.8 billion within the remaining quarter of 2020, with momentum carrying into the primary quarter of 2021, when issuance totaled US$1.7 billion.
The restructuring of United Arab Emirates (UAE) hospital group NMC in June 2021—the most important personal healthcare supplier within the UAE—which disclosed a US$4 billion hidden debt that led to an administration and asset sale, underpinned the uplift in restructuring exercise. Extra restructuring conditions are anticipated as authorities monetary help unwinds and higher visibility on future enterprise earnings offers lenders and debtors a clearer image of worth breaks in capital buildings.
ESG attracts curiosity
As has been the case globally, debt exercise within the Center East additionally noticed rising urge for food from buyers for inexperienced, sustainability and environmental, social and governance (ESG)-linked loans.
Center East debtors famous the rise in demand from buyers for ESG-linked investments, in addition to authorities initiatives to diversify economies away from hydrocarbons and to enhance reporting on sustainability. Inexperienced and sustainability-linked debt issuance within the Center East and North Africa reportedly reached US$6.4 billion within the first half of 2021, surpassing the full-year complete for 2020.
In March, one of many area’s largest banks, Emirates NBD, issued the Center East’s first sustainability-linked mortgage. The financial institution raised US$1.75 billion for the ability, which is able to see pricing linked to gender range and water conservation metrics.
In Saudi Arabia, in the meantime, the Pink Sea Improvement Firm, which is overseeing the event of a landmark, high-end tourism venture, secured a 14.12 billion riyal (US$3.77 billion) inexperienced mortgage, believed to be the primary such mortgage facility to be denominated in native forex. Additional inexperienced and ESG-linked debt issuance is anticipated by way of the remainder of the 12 months.
The expansion of the ESG debt area within the Center East, coupled with the enhancing outlook for mainstream mortgage and bond issuance, bodes effectively for debt market exercise ranges within the coming months.