Middle East Debt Markets Rise As Economic Outlook Improves | White & Case LLP
The lifting of pandemic restrictions, coupled with the successful rollout of vaccination in the Gulf and improved economic outlook, supported a rebound in loan and bond activity in the Middle East in the first half of 2021
Things are looking up for the debt markets in the Middle East. In June, the World Bank raised economic growth forecasts for 2021 for the Middle East and North Africa to 2.4%, from 2.1% in January, as vaccination programs in the states of the Gulf have seen economies reopen and the recovery in oil prices boosting exports.
Global issue in value Q1 2019 – Q2 2021
Instrument type: All Product use: All
Site: CEEMEA and Middle East and Turkey Sectors: All sectors
This stabilizing macroeconomic situation has given borrowers and lenders the confidence to return to the market after a volatile 2020. This is a slight increase from the same period last year, when the figures hit US $ 150.9 billion – skewed by a spike in activity in the second quarter of 2020 as issuers rushed to consolidate their balance sheets amid an accelerating COVID-19 disruption – and a marked improvement over US $ 106.6. billion emissions recorded in H2 2020.
Encouraged by the improvement in the market environment, issuers saw a window allowing them to raise large sums of capital at attractive rates. Qatar Petroleum, for example, raised four tranches of bonds in June 2021 with a combined value of $ 12.5 billion, with coupons ranging from 1.375% to no more than 3.3%.
General corporate issues of US $ 100.7 billion in the Middle East and Turkey accounted for the bulk of the proceeds in the first half of 2021, but borrowers in the region also took advantage of favorable market conditions to refinance the existing debt, with refinancing issues of US $ 18.7 billion representing approximately 12% of bond and credit activity.
When refinancing, borrowers were able to push back debt maturities and lock in lower prices. The Abu Dhabi National Energy Company raised two senior unsecured bonds of US $ 750 million in April 2021, due 2028 and 2051, with coupons of 2% and 3.4%, respectively. The proceeds will be used to refinance a series of existing bonds priced between 3.625% and 5.875% and maturing between 2021 and 2023.
Mergers and acquisitions and restructuring boost momentum
In addition to strong refinancing and general product activity, the recovery in the mergers and acquisitions market and the increase in restructuring activities also contributed to the regularity of issues recorded this year.
The value of M&A deals in the Middle East increased from US $ 32.1 billion in the second half of 2020 to US $ 57.6 billion in the first half of 2021. Middle East operations figures were boosted through a series of mega-operations in various sectors. The $ 2.2 billion merger between Qatari banks Masraf Al Rayan and Al Khalij Commercial Bank in January 2021 and the sale of $ 12.4 billion by Saudi oil group Saudi Aramco of a 49% stake in its Pipeline activities at US firm EIG Global Energy Partners in June 2021 are part of the jumbo deals so far this year.
The increase in transactions has stimulated debt issuance for transactions in the region. M&A and Middle East and Turkish buyout issues of high yield, investment grade bonds and leveraged and unleveraged loans have jumped over the past 12 months, from only US $ 110 million in the first quarter of 2021 to US $ 11.7 billion the following quarter. M&A and buyout issues for the first half of 2021 have more than quadrupled from the US $ 2.9 billion posted in the second half of 2020.
Mergers and acquisitions are expected to provide a fertile pipeline of debt financing opportunities through 2021 and into 2022. For example, according to By debt, Saudi Telecom Company is in talks with domestic lenders for a loan equivalent to US $ 1.3 billion to support the purchase of a 55% stake in Vodafone Egypt.
Restructuring issues, meanwhile, saw a slight increase in activity in the Middle East and Turkey, which is rare in the region. After posting a volume of US $ 560 million in the second quarter of 2020, restructuring issuances jumped to US $ 2.8 billion in the last quarter of 2020, with momentum continuing into the first quarter of 2021, when issues totaled US $ 1.7 billion.
The restructuring of United Arab Emirates (UAE) hospital group NMC in June 2021, the largest private healthcare provider in the UAE, which revealed a hidden debt of US $ 4 billion which led to an administration and to a sale of assets, supported the increase in restructuring activity. Further restructuring situations are expected as government financial support unwinds and greater visibility into future corporate profits gives lenders and borrowers a clearer picture of value disruptions in capital structures.
ESG arouses interest
As has been the case globally, debt activity in the Middle East has also sparked a growing investor appetite for green, sustainable, environment-related, social and governance-related loans. (ESG).
Borrowers in the Middle East have noted increased investor demand for ESG-related investments, as well as government initiatives to diversify economies away from hydrocarbons and improve sustainability reporting. Green and sustainability debt issuance in the Middle East and North Africa is estimated to have reached $ 6.4 billion in the first half of 2021, exceeding the total for 2020.
In March, one of the region’s largest banks, Emirates NBD, issued the Middle East’s first sustainability loan. The bank has raised US $ 1.75 billion for the facility, the prices of which will be tied to gender diversity and water conservation measures.
In Saudi Arabia, meanwhile, the Red Sea Development Company, which oversees the development of a historic high-end tourism project, secured a green loan of 14.12 billion riyals ($ 3.77 billion), which would be the first such loan to be denominated in local currency. Further green debt and ESG issues are expected for the rest of the year.
The growing ESG debt space in the Middle East, coupled with the improved outlook for conventional loan and bond issuance, bodes well for levels of debt market activity in the Middle East. months to come.