Qatar is selling its first dollar bonds in two years just as the region’s security risk rises with the prospect of a U.S. strike in Syria.
The world’s biggest exporter of liquefied natural gas is offering a three-part bond sale, less than 48 hours after Saudi Arabia raised $11 billion in the largest offering by an emerging-market sovereign this year. Qatar’s deal, which is expected to be completed on Thursday, has received bids in excess of $32.5 billion, including interest from joint lead managers, as of 3:45 p.m. in Dubai, according to people familiar with the matter.
The sale comes after U.S. President Donald Trump’s tweets on Wednesday raised speculation that a strike against Syria is imminent, adding to a risk-off sentiment that had already sent the average yield on emerging-market debt near the highest level in 16 months, according to the Bloomberg Barclays Emerging Markets Hard Currency Aggregate Index.
“The developments in Syria are having an impact on several markets, the oil markets, the international markets,” said Mohieddine Kronfol, the chief investment officer for global sukuk and Middle East and North Africa fixed income at Franklin Templeton Investments in Dubai. “Everyone is a little bit nervous about what may happen in Syria, but historically the conflict in Syria, or Yemen or Iraq have not really had a big impact on GCC credit per se.”
Qatar, in the midst of a diplomatic and trade standoff with a group of Arab nations including Saudi Arabia, plans to bridge its budget deficit of $7.6 billion with debt offerings. The price indicators are about 50 to 70 basis points wider than where its existing bonds trade, according to data compiled by Bloomberg.
The initial guidance “indicates that they are looking to attract a large book,” said Kronfol. “We suspect that they will come in a little bit, but we do anticipate that they should be able to close a pretty significant transaction.”
So far, the pricing for Qatar’s debt is generous when compared with Saudi Arabia’s offering. The guidance for its five-year bond is 30 basis points higher than the kingdom’s seven-year notes, and the spread of its 10-year bonds is 25 basis points wider than Saudi Arabia’s 12-year securities. And finally, the initial price indication for Qatar’s 30-year bonds is 20 basis points more than the kingdom’s 2049 securities.
“I expect the order books to be strong,” Hakki Kalsen, a portfolio manager for emerging-market debt at Union Investment Privatfonds in Frankfurt. “Qatar has managed the regional boycott very well. At current energy prices, they should have a fiscal surplus.”
Qatar is the world’s richest country per capita on a purchasing power parity basis, and its rated three notches higher than Saudi Arabia by S&P Global Ratings. The direct economic and financial impact of the diplomatic rift is now fading, the International Monetary Fund said last month.
Qatar’s economic growth is expected to accelerate to 2.8 percent this year, almost double the pace forecast for Saudi Arabia, the world’s biggest oil exporter, according to estimates compiled by Bloomberg. Saudi Arabia’s economy shrank in 2017 after the government scaled back spending. Still, Qatar’s gross domestic product is about a quarter of the size of it neighbor’s.
Al Khaliji, Barclays Plc, Credit Agricole CIB, Credit Suisse Group AG, QNB Capital, Deutsche Bank AG and Standard Chartered Plc are helping arrange the sale for Qatar.