Qatar's Got Enough Bond Friends to Shrug off Sanctions
(Bloomberg Gadfly) -- If you ignore them, they'll only want you even more.
The rumblings that Qatar would return to international bond markets after a hiatus of nearly two years have been going on for some time, and as Gadfly noted in October, the nation was conspicuous by its absence from a debt sale bonanza in the region.
But now, it's finally here, with a three-day roadshow starting Monday in the U.S. and U.K. It will probably issue about $9 billion in five, 10 and 30-year tranches, as it did in May 2016.
In the interim, world events have not gone its way. The sanctions Gulf Cooperation Council members placed on Qatar have continued to bite. The volatile start to the year has kept fixed income from being an easy ride. It would appear that the tiny nation has missed the boat.
No matter. Qatar is a heavily under-weighted credit for most global bond funds, with only $17.9 billion of existing debt compared to an annual gross domestic product in excess of $150 billion. The allure of novelty gets an added kick from funds that will be even keener to buy issues that are set to enter investment grade bond indexes.
From the perspective of credit ratings it's in the sweet spot for investors, given its AA- grade from S&P Global Ratings and the equivalent Aa3 from Moody's Investors Service.
This is where it gets interesting. Though Qatar is rated three notches higher than Saudi Arabia, its bonds are just 14 basis points tighter. That's not much of a premium.
Qatar's credit spreads have tightened modestly since it last came to the bond markets, but in that time U.S Treasury yields have moved significantly higher. With reasonable new issue premiums, a five-year is likely to price not far below a 4 percent yield, a 10-year a bit above 4 percent and a 30-year close to 5 percent. For a credit rated the fourth-highest investment grade, that is going to be irresistible for many global funds.
And that's a good thing for the issuer. One-third of the 2016 bonds went into GCC accounts, but sanctions are going to keep them away this time. A substantial premium would mean the rest of the world should be more than able to pick up the slack. A 30-year tranche will certainly benefit from a listing in Taiwan, where Qatari issuers have managed to access private placement demand in the last year.
In what is probably not a coincidence of timing, Qatar's emir, Sheikh Tamim bin Hamad Al Thani will be hosted by President Donald Trump for talks in the White House on Tuesday. And a part state-owned conglomerate, Mannai Corp., is roadshowing its debut bond deal. Qatar will be keen that its re-emergence on the world stage goes smoothly, and so will probably be well prepared to pay up. That should be enough to help bond investors look past any political risks.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
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