Bond issuances to soar this year, says top Dubai banker

October 10, 2024, 7:55 AM

92 sukuk bond deals this year
15 more expected
$300m to $500m usual range

Emirates NBD Capital, the investment banking unit of Dubai’s top lender, has issued a record number of bonds for its clients this year as corporate and sovereign borrowers shrug off historically high interest rates and geopolitical uncertainties.

The Emirates NBD subsidiary launched operations in 2007. Today, it has eight full-time employees in its Dubai office – six of whom specialise in bond and sukuk issuance and two who work on bond syndication. The company also has staff in Singapore and India.

As of early October, the company had completed 92 bond or sukuk transactions in 2024. That compares with 45-50 in 2023.

Bonds are usually in the $300 million to $500 million range, with 90 percent issued in dollars and the remainder in euros or UAE dirhams.

Ritesh Agarwal, Emirates NBD Capital’s head of debt capital markets, attributes this increase to two key factors: market demand and “the effort we have put in over the past few years to build a franchise including structuring, documentation, work streams, syndicate sales and aftermarket trading.”

He expects his team to complete about 15 more bond issuances this year, explaining that the past five weeks has been the busiest period on record with 22 bonds launched in that time.

Slowdown

“There will be a slowdown for sure given the upcoming US elections and geopolitical uncertainties, but if the interest rate trajectory remains downwards, we expect next year to be busy albeit with less activity than 2024. A lot of front loading in terms of bond issuance has already happened this year,” says Agarwal.

“Saudi Arabia will continue to borrow. That trend won’t change in the next 2-3 years. Banks will continue to issue bonds. India might increase.”

The US Federal Reserve slashed rates by 50 basis points in mid-September, signalling the start of a new rate cutting cycle. The US benchmark rate had soared from near-zero in early 2022 to a 23-year high of 5.5 percent as the Fed sought to tame inflation. Gulf countries’ interest rates mirror those of the US due to their currencies’ dollar pegs.

“Investors tend to get ahead of what the Fed says, so there’s a lot of euphoria right now in terms of investor sentiment,” says Agarwal. “Base rates will probably stabilise around 3.0 to 3-5 percent. Lower rates are generally positive for bond issuance because borrowing costs are lower”.

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Nonetheless, central banks often cut rates when economic growth weakens, he notes. In such periods, issuers – especially corporations – may be wary of raising debt, he says.

In terms of geographical spread, around 30 percent of the 92 bonds or sukuk were issued by entities from the UAE. A further 30 percent was from the other five GCC nations, 25 percent was from Turkey and 15 percent was from the rest of the world.

In the next 2-3 years, Agarwal’s team will “expand into central and eastern Europe, plus Georgia, Pakistan. We’ll maybe do more in Africa and Asia as well – anywhere in emerging markets that we can reach is what we want to reach in the next few years,” he says.

Network and relationships

“The biggest value addition we provide for clients outside the GCC is our network of Middle East investors, which none of the other banks have,” says Agarwal.

“The relationships we have with all investors, from CIOs (chief investment officers) to junior analysts, that’s how we have been able to increase Middle East allocations for international clients from 0-2 percent to perhaps 15-20 percent. We are a conduit between issuers outside the region and investors from this part of the world.”

In terms of issuer type, around 10-15 percent of the bonds Emirates NBD Capital has completed this year were for sovereign and quasi-sovereigns, 35 percent were for corporations and 50-55 percent were for banks.

Banks issue bonds to meet regulatory capital requirements, with most of these new issuances replacing maturing bonds, Agarwal adds.

About 60 percent of the bonds Emirates NBD Capital originates are bought by investors from the GCC, 30 percent from Europe and about 5-10 percent from Asia.

Aside from sovereigns, GCC issuers do not sell to US investors due to additional regulatory costs and complications.