The decision to suddenly withdraw a proposed dollar bond issue by ADCB on September 21 was an odd situation. Deals do get axed in the region, but rarely by a credit like ADCB, which is an A-rated regular in the international debt markets.
And this one was pulled late in the process, after the four leads – Bank of America Merrill Lynch, Barclays, ING and JPMorgan – had set precise guidance of 155 basis points over mid-swaps (a 20bp premium, which should be enough to get a deal away for a credit like this).
A host of reasons were being bandied about among debt capital markets bankers in the region in the days after the cancellation. The Eid al-Adha holiday began two days after the deal’s cancellation, and many people in the region take the whole week off; market sentiment remains weak because of China; Abu Dhabi’s budget is due in October, and investors may be waiting to see what sovereigns are likely to do in this low oil price environment.
But the bigger question is whether liquidity in the region has faded. Deals like this, while internationally distributed, are often anchored by local investors, and they no longer seem to have as much money to put to work, partly as the knock-on effects of a sustained low oil price flow through the region’s institutional investors.
Worse, local liquidity may be dropping just as it is needed. Saudi Arabia’s plans to raise the equivalent of $27 billion in debt by the end of the year – SR20 billion ($5.3 billion) a month from August onwards – represented the first sovereign issuance since 2007 in light of the oil price’s impact on its economy.
In June the UAE’s central bank set out liquidity requirements for banks to comply with Basel III capital rules, which has already prompted First Gulf Bank and Union National Bank to sign loans to bolster their liquid assets, with many more expected to follow.
Those banks, in turn, become less likely buyers for other people’s bonds, as they need to keep that liquidity in their own books.
Is there a crunch ahead? Euromoney will study that question in detail in our November edition. But these are looking like increasingly nervous times for even some of the Middle East’s best-run banks.