Gulf bond feast fails to satisfy arranging banks

Bankers worry future deals will continue to have big syndicates

LONDON, May 23, (RTRS): A flurry of new issuance has swept the Gulf but arranger slots on trades are becoming increasingly bloated as there is still not enough volume to support the number of banks vying for the business.

The number of banks hired to run deals in the Middle East is shooting up from the typical five or six arrangers. Qatar has hired 10 banks for an upcoming trade, DP World and Emirates Islamic Bank nine each while Noor Bank has a more modest seven.

“We’re not happy at all with the practice,” said a debt capital markets banker based in the region.

Issuers are engaging in the age-old trade-off of rewarding banks with bond mandates for providing cheap loans. All 10 firms on Qatar’s bond, for example, were part of a 14-bank syndicate that lent the sovereign $5.5 billion in January.

Gulf borrowers have signed $21.6 billion in syndicated loans this year, according to Thomson Reuters LPC. Only $13.5 billion of bonds have been issued.

Compare this with 2013 and 2014, when $34 billion and $37 billion of bonds were placed by Gulf issuers, against syndicated loan volumes of $17 billion and $21 billion respectively.

“In busier times, issuers can rotate mandates between lenders,” said a second debt capital markets banker. “Now we don’t have that.”

Large arranger groups are becoming an issue for some fund managers too, with one international investor at a recent roadshow directly questioning a Gulf issuer about why it needed so many banks for what was likely to be a fairly standard deal, according to a banker present.

“The issuer didn’t really have an answer,” the banker said.

Abu Dhabi showed in April that an issuer can use far fewer arrangers and still get a good outcome, after raising $5 billion with three banks running the trade.

For investors, having so many banks makes deals more cumbersome and potentially cuts into the allocation if each bank brings its own buyers.

For bankers, having so many houses involved in a deal eats into league table rankings and fees, even though some do more work than others.

“There will only be three or so banks that run the trade,” said another DCM banker. “On DP World, only a few banks are arranging the tender, which gives a good signal about who will run the trade.”

Of the nine banks on the books, four are involved in a tender on the company’s 2017 sukuk. Those four also arranged the roadshow for the new potential transaction. Bankers worry that future deals will continue to have big syndicates. The market is likely to stay busy throughout the year. Qatar’s Ooredoo has hired for a US dollar bond issue, according to sources.

Abu Dhabi state fund IPIC has mandated for a euro offering. That deal is likely to include all nine banks that lent 3.6 billion euros to IPIC subsidiary Aabar Investments in March. And then there’s Saudi Arabia’s mooted debut in the international bond market. The kingdom took its first steps towards the transaction last week after sending out RFPs.