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Middle East: Banks bypassed as debt market flares

Bond resurgence eschews riskier banks; Project bonds might seal demise of loan dominance in Gulf

Qatar Holding’s purchase of $2.72 billion of convertible bonds for a 5% stake in Santander Brazil last month is just one sign of increased investment banking activity in the Gulf. It follows a $2.8 billion investment this summer in Agricultural Bank of China by Qatar Holding, the direct investment arm of the country’s sovereign wealth fund, showing that Qatar has developed a taste for emerging market banks.

Qatar’s investments also point to a rebounding theme in the Gulf: the region’s growing profile on international capital markets, be it on the buy or sell side.

Bankers say the agreement on a restructuring for state conglomerate Dubai World in mid-September has given international investors clarity on the risks in the Gulf, lifting the mood across the region. The agreement has unleashed deals, above all in debt capital markets. Many deals have been waiting in the pipeline since Dubai World announced a repayment delay one year ago.

"Almost everyone [in the Gulf’s debt market] is looking to get something done. New deals are being pitched," says Simon Eedle, global head of Islamic banking at Crédit Agricole.

The Middle East has returned to the emerging markets fold. It is now a destination for global investors eager to increase exposure to fast-growing economies, while yields in developed markets are unattractive because of slow growth and low interest rates.

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