Banks in the United Arab Emirates may opt to refinance more than $3 billion of bonds due this year should pricing remain at current levels, as they seek to extend the average maturity of their debt.
UAE banks have about $3.49 billion of bonds and sukuk maturing in 2012, according to data compiled by Bloomberg. Most of this debt is held by the country’s three largest banks, Emirates NBD PJSC, National Bank of Abu Dhabi PJSC and Abu Dhabi Commercial Bank PJSC, the data shows.
An analyst at Rasmala Investment Bank Ltd. in Dubai, Raj Madha said: “$3 billion is a lot to be falling due at any one time, but recent sukuk issues suggest that deals can be done at the right price even in the current difficult international environment.” Banks may prefer to roll over debt to extend maturities even if they have money to repay it, he said.
Profit at UAE banks is starting to recover from the worst financial crisis since the 1930s, which curbed lending and forced them to take provisions against some of Dubai’s government-related entities. Banks in the country raised $2.3 billion worth of bonds in 2011, according to Bloomberg data.
Abu Dhabi Commercial Bank PJSC, the UAE’s third largest lender by assets, sold $500 million of five-year dollar-denominated sukuk in November. The bank priced its Islamic bonds at 4.071 percent, data compiled by Bloomberg show. The yield on the notes due November 2016 rose 11 basis points to 3.68 percent from a Jan. 4 low.
Abu Dhabi Islamic Bank PJSC, the country’s second biggest Shariah-compliant bank, also issued $500 million of Islamic bonds in November. The sukuk, due November 2016, was priced at a profit rate of 3.78 percent. The yield was little changed at 3.53 percent Monday.
“The current price in the market here is between 3 percent to 4 percent,” said Samer Mardini, vice president of fixed-income and Islamic finance products at SJS Markets Ltd. in Dubai. “I don’t think banks coming to the market this year are going to pay more than that.”
The average yield on conventional bonds sold by financial companies in the six-national Gulf Cooperation Council rose 131 basis points last year to 6.38 percent on Dec. 30, the HSBC/Nasdaq Dubai GCC Conventional Financial Services U.S. Dollar Bond Index shows. It was at 5.35 percent on Jan. 6.
“As things stand the sukuk market appears to be open,” said Madha. “However, there are certainly issues out there which could change that, with Europe being the most obvious.”
Europe’s debt crisis, which resulted in bailouts for Greece, Ireland and Portugal, has pushed up global borrowing costs for banks both in the Persian Gulf and Europe.
The three-month Emirates interbank offered rate, the rate at which banks in the UAE lend to each other, was at 1.52 percent Monday, up from 1.47 percent on Aug. 8, the lowest level since Bloomberg began collecting data in September 2006. The three-month London interbank offered rate, or Libor, has jumped 34 basis points from a June 15 low to 0.581 percent Monday.
Emirates NBD, the UAE’s biggest bank by assets, has $1 billion of bonds due this year. The lender has the cash to repay existing debt, Chief Executive Officer Rick Pudner said in December.
Emirates Islamic Bank, a unit of Emirates NBD, hired six banks to manage the possible sale of a benchmark Islamic bond, a banker familiar with the transaction said on Jan. 3. The bank had planned to sell a sukuk at the end of 2011 and postponed the sale due to market conditions.
“ENBD has about 36 billion dirhams of liquid assets and 13 billion dirhams of net liquid assets, so there’s enough liquidity,” said Madha. “The issue is always pricing, but recent bond issuances have been at reasonable levels.”
Abu Dhabi Commercial Bank has about $269 million in bonds maturing this year. The bank may offer a benchmark-sized bond in the first half of 2012, Chief Financial Officer Deepak Khullar said Nov. 22.
“It’s already a matter of public record that some banks are looking to issue,” said Giyas Gokkent, senior economist at NBAD. Deposits declined by 74.5 billion dirhams between April and November 2011, “so banks would presumably want to secure new funding,” he said.
Bank deposits in the UAE dropped for a fifth month in November to 1.054 trillion dirhams ($287 billion), according to data from the central bank. Loans exceeded deposits for a third month in the second biggest Gulf Arab economy, the data show.
“The amount of maturing bonds is thus not a concern given that these are small compared to the size of the banking system,” Gokkent said.