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Qatar offers $6.6B in bonds, sukuk as debt market forms

Qatar will offer over $6.6 billion in local currency bonds and sukuk this week, the largest sale in three years, as the emirate seeks to deepen its domestic debt market in the lead-up to hosting the World Cup.

The central bank will sell 11 billion riyals ($3 billion) of sukuk, which comply with Islam’s ban on interest, and 13 billion riyals of non-Shariah compliant bonds, according to a statement on its website. The sale is the biggest since January 2011, when it issued 50 billion riyals of securities, which come due this week.

Qatar, the world’s largest exporter of liquefied natural gas, is developing its capital market amid projects worth about $200 billion that include stadiums, roads and hotels in preparation for the 2022 football World Cup. Borrowers may turn increasingly to investors for financing as the nation looks for ways to rein in government debt.

“ Qatar has a plan to really establish a local currency debt market, and to do that the government must start it and lead,” Mohammad Ghiyath Sheikhah, first manager for international investment and finance at Doha-based Qatar International Islamic Bank, said by phone Monday. “For that a small amount does not make sense.”

The country in December sold 500 million riyals of Islamic bonds due in 2018 with a profit rate of 3 percent. That compares with an average yield on sovereign sukuk in the Middle East of 4.91 percent, according to JPMorgan indexes. Qatar sells 4 billion riyals of short-term debt every month and in March began selling the same amount each quarter to local banks in three-and five-year tenors.

The notes can be sold by lenders but are typically held, said Ahmad Shehada, head of trading at Qatar National Bank Financial Services.

“This bigger issue could be an effort to incentivize banks to start to release some of what they hold,” he said by phone from Doha Monday.

“We are seeing more foreign interest in Qatari paper. This sale is about development of the debt curve and giving foreigners greater access to riyal debt.”

The central bank governor didn’t return a phone call seeking comment.

Qatar’s government and companies are tapping debt markets as the nation embarks on $138 billion of investments by 2016. Domestic debt alone is unlikely to cover all of Qatar’s infrastructure spending plans, according to Amol Shitole, a credit analyst at SJS Markets Ltd.

“It has to be a diversified mix of financing,” he said by phone from Bangalore, India. “The strategy to finance big projects must provide a cushion in case the prices of oil and gas decrease” and government revenues fall, he said.

Dollar bonds from Qatari companies are in demand. Investors placed orders worth about $5 billion for telecommunications provider Ooredoo QSC’s $1.25 billion sukuk sale in November.

The Qatari government last sold dollar sukuk in July 2012.

The nation’s gross debt reached 36 percent of gross domestic product in 2012, the highest among the six Gulf Cooperation Council members that include Saudi Arabia, and more than Iraq’s 34 percent, according to the International Monetary Fund. The government requires state-run companies to obtain Finance Ministry approval before borrowing from banks, an official said in November.

“Qatar’s local debt market is now the most active in the region after Saudi Arabia,” Shitole said. “Developing it further is a smart move given the spending they have lined up.”

 
A version of this article appeared in the print edition of The Daily Star on January 15, 2014, on page 6.
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Summary

Qatar will offer over $6.6 billion in local currency bonds and sukuk this week, the largest sale in three years, as the emirate seeks to deepen its domestic debt market in the lead-up to hosting the World Cup.

The central bank will sell 11 billion riyals ($3 billion) of sukuk, which comply with Islam's ban on interest, and 13 billion riyals of non-Shariah compliant bonds, according to a statement on its website.

The country in December sold 500 million riyals of Islamic bonds due in 2018 with a profit rate of 3 percent.

Qatar sells 4 billion riyals of short-term debt every month and in March began selling the same amount each quarter to local banks in three-and five-year tenors.

Qatar's government and companies are tapping debt markets as the nation embarks on $138 billion of investments by 2016 .


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