Kuwait leads and follows with bond debut
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Kuwait leads and follows with bond debut

Emirate last in GCC to issue bond debut; Kuwaiti issuers to follow the sovereign.

Kuwait followed the lead of its Gulf neighbours in March, as it issued its debut sovereign bond to strong investor support. Kuwaiti banks and corporates may now make the most of that benchmark deal to enter the market.

The small oil-rich country, which borders Saudi Arabia and Iraq, was the last of the six Gulf Co-operation Council countries to issue debt. The others have already entered the market as they sought to fill the budget deficits caused by low oil prices. The most impressive of the lot was Saudi Arabia’s in October, which totalled $17.5 billion, from a book that peaked at $67 billion.

Rani Selwanes, NBK Capital

Kuwait’s bond, meanwhile, raised $8 billion, from a book that peaked at an impressive $29 billion – a level of oversubscription only slightly lower than on the Saudi bond. 

“This was a major step forward for Kuwait,” says Rani Selwanes, head of investment banking at NBK Capital, which worked on the deal. “They [the Kuwaiti authorities] were highly successful; I think they exceeded even their aspirations.”

In a statement to Kuwait’s state news agency, the minister of finance, Anas Al-Saleh, expressed his enthusiasm at the result: “We are delighted with the successful pricing of this transaction and the positive response we have received from international investors. This highlights the State of Kuwait’s strong credit standing amongst its international peers.” 

Deal split

The deal was split between a five-year tranche of $3.5 billion priced at 75 basis points over US treasuries and a 10-year tranche of $4.5 billion priced at 100bp over. Both tranches tightened in secondary trading.

Citigroup, HSBC and JPMorgan were global coordinators. NBK Capital, a bookrunner, was the only Kuwaiti bank on the deal.

Although Kuwait is heavily reliant on oil revenues, the emirate was in less of a hurry to issue debt than some of its neighbours, as the oil price at which it can balance its budget is around $50 a barrel, lower than in much of the Gulf. Qatar is the only other Gulf state in a similar position to Kuwait.

Even before the debt issue, Kuwait was expected to be able to balance its budget this year, so the deal was less about funding itself and more about opening up the bond market for future issuance with a large and liquid benchmark. 

The issue follows the announcement by the Kuwaiti government in late January of a reform programme called New Kuwait, which aims to diversify the country’s economy away from oil and reinforce the private sector. The credibility of the programme is hotly contested in Kuwait, as many bankers and businessmen say it is essentially a repeat of previous reform plans. They say those earlier plans have for the most part failed to produce tangible results.

No crutch

Selwanes says that the announcement of New Kuwait and the launch of the bond happening in relatively quick succession was coincidental. He says Kuwait’s debt issue was not dependent on the reforms announced and that investors would have bought into the deal regardless: “We didn’t need a crutch for the roadshow,” he says. 

“When it comes to a credit story,” Selwanes adds of the double-A rated credit, “it doesn’t come stronger than Kuwait right now.”

Michel Accad, Al Ahli Bank of Kuwait

Bankers in Kuwait say the sovereign’s entry to the market will give other Kuwaiti names an easier and cheaper avenue for issuing their own debt. Asked why he thought Kuwait had done it, Michel Accad, chief executive of Al Ahli Bank of Kuwait, says: “First, money doesn’t hurt, and they need to establish a precedent.”

ABK looked to be the first to benefit from that precedent. Soon after Kuwait priced its bond, the bank launched its own senior unsecured bond issue of up to $500 million with a roadshow in Hong Kong, Singapore, the United Arab Emirates and London. The bank had thought of launching its five-year deal some weeks earlier, but once it learned that the sovereign would come to market, it decided to wait and price at a premium to Kuwait’s debt. Citi, HSBC and National Bank of Abu Dhabi are working on ABK’s bond.

Asked why ABK was issuing debt, Accad says: “We don’t need capital, we don’t need liquidity.” Rather, he says, it is about tenor matching, as the bank wishes to fund longer-term loans of five to 10 years through a five-year bond instead of through short-term deposits of less than a year.

ABK was one of the investors in Kuwait’s sovereign bond. The bank bid $200 million, Accad says, expecting to be allocated $100 million. In the end, demand was such that it was scaled back to just $20 million. Accad says bids by local investors were scaled back more than others, as the issuer worked to make the investor base especially international.

Selwanes says it is a fair assumption that most Kuwaiti issuers had been waiting for the sovereign to be priced to launch their own deals. “We will see more on the corporate and banking side,” he says. Asked whether NBK might issue a bond, he says: “If they feel they need to, they now have an excuse to.”

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