DUBAI: Arabian Gulf companies are poised to increase sales of bonds convertible into shares, creating a “multi-billion dollar” market for the securities within four years, according to New York-based investment bank Jefferies Group.
Non-government companies in the Gulf have about $200mn of convertible bonds outstanding, Christian Mouchbahani, the investment bank’s head of Middle East business, told reporters in Dubai on Tuesday.
Demand for convertible bonds is increasing as investors seek ways to profit from a possible recovery in stock prices following a slump during the past year, Mouchbahani said.
Saudi Arabia’s Tadawul all-share index is the worst performer of all equity benchmarks tracked by Bloomberg in the past 12 months, plunging 41%.
The benchmarks of Dubai and Abu Dhabi were the fifth and sixth-worst performers in the period as investors sold shares on concern that prices had outstripped potential for corporate earnings growth.
“Convertibles are very attractive for investors, given the Gulf’s bear equity markets, as they give potential for upside without downside now,” Mouchbahani said. “Some issuers see them as a cheaper form of equity, requiring less dilution and shares, while others see them as cheaper debt requiring lower coupons.”
Holders of convertible bonds typically can choose whether to convert the securities into the issuer’s shares.
Gulf companies will almost double sales of conventional and Islamic bonds to about $30bn this year from $18bn in 2006 to finance expansion and cut reliance on bank loans, Moody’s Investors Service forecast in March.
Dana Gas, a Sharjah, UAE-based natural gas processing and transport company, on Tuesday said it planned to sell “at least $1bn” of five-year convertible Islamic bonds to finance expansion and diversify its sources of funding.
Jefferies, which advised on the Aston Martin buyout by David Richards and Kuwait’s Investment Dar Co, opened its first Middle East office in Dubai eight months ago, said Mouchbahani, 38, who formerly worked for Dubai Bank, BNP Paribas and Morgan Stanley.
Jefferies’ Middle East and North Africa staff of 10 has mandates to help arrange more than $1bn-worth of regional acquisitions, divestments and securities sales this year, Mouchbahani said.
The bank’s Dubai office will cover the Gulf states, North Africa, Turkey and Pakistan, he said.
Sales of Islamic bonds, known as sukuk, grew nine times faster than international corporate bonds last year and twice as fast as the US market for debt with ratings below investment grade, data compiled by Bloomberg show.
A total $9.8bn of sukuk were sold in the first half of this year, a 42% increase on the $6.9bn of securities sold in the same period of 2006.
Gulf companies are following state-owned entities in increasing convertible bond sales, Mouchbahani said.
Dubai-owned developer Nakheel sold $3.52bn of convertible sukuk in November, the biggest Islamic bond sale. Nakheel increased the amount from an initial $2.5bn target after underwriters Dubai Islamic Bank and Barclays Capital received orders for $6.25bn. – Bloomberg
|
