“We have had a fantastic year, with very strong issuance volumes in all major asset classes compared with 2022,” says Hitesh Asarpota, CEO of Emirates NBD Capital. “This has been supported by strong macroeconomic fundamentals across the GCC, driven both by relatively high energy prices and accelerated economic diversification.”
The result is that international investors have increasingly been turning their attention to the safe-haven credentials of the top credits in the GCC.
“We saw some volatility on account of the events of October 7,” Asarpota notes. “But that soon subsided, and since then we have closed about $10bn of fixed income issuance.”
The resilience of the region’s fixed income markets has not only been apparent in rising volumes, oversubscribed books and stable new issue premiums (NIPs). It has also been reflected in the diversification of issuances across the region.
Diversifying the issuer base
Sovereigns and other public sector borrowers have continued to account for the lion’s share of volume in the primary market. These have been swollen by blow-out new issues such as Saudi Arabia’s $10bn trade in January 2023. But as Asarpota adds, there has also been a consistent and well-diversified flow of issuance from financial issuers in the region, encompassing capital issuances as well as unsecured senior offerings.
Another element that has injected added diversity into the market has been growing volumes of green, social and sustainable (GSS) issuance, much of which has been structured in shariah-compliant (sukuk) format.
Beyond the fixed income market, Asarpota is encouraged by continued strength in other asset classes across the region. Liquidity in the loans market is at an all-time high, while in the equity space IPO proceeds have been rising.
It is against this healthy backdrop across all asset classes that Emirates NBD has built upon its proven leadership in capital markets in the GCC and beyond. So far this year, the bank has helped clients raise the equivalent of more than $37bn of debt in public markets and private placements across 70 deals. In equities, meanwhile, it has advised on IPOs valued at about $1bn year-to-date. This prominence has been cultivated around a two-pronged strategy of internationalisation of the bank’s business model and diversification of its customer base.
“In the last few years, we have increasingly been able to put the UAE on the roadshow map as one of the locations issuers visit when they are looking to raise finance,” Asarpota says. This has led to a rising number of mandates from borrowers from central Europe, Turkey, the subcontinent, and east Asia.
Broadening the market for ESG and sukuk issuance
Increasingly, these mandates have come from issuers eager to explore the potential of issuance in ESG and sukuk format, between which there is a natural overlap.
Few deals provide a clearer illustration of this twin commitment to internationalisation and diversification than the $600m five-year 144A/Reg S sukuk led by Emirates NBD for US aviation company Air Lease in March. This was a landmark transaction which was the first ever offering of its kind into the Middle East market from a North American corporate and the largest sukuk from a US-based borrower in history. About 80% of this deal, which attracted orders of more than $2.2bn, was placed in the GCC. “The issuer was able to diversify its investor base and achieve phenomenal pricing at the same time,” Asarpota says.
Asarpota points to three other blow-out transactions illustrative of Emirates NBD’s credentials as a standard-bearer for internationalisation and diversification.
Showcase deals in the tier one and sukuk markets
The most striking of these was the $750m additional tier one (AT1) perpetual sukuk in July for Abu Dhabi Islamic Bank (ADIB), which achieved the highest oversubscription level from any GCC bank issuer for a decade and was priced well inside guidance.
“ADIB reopened the global market for US dollar-denominated tier one debt after the Credit Suisse AT1 writedown,” Asarpota says. “To generate an order book of more than $7bn, mainly from the GCC region, was phenomenal.”
A second highlight was the two tranche $3.5bn sukuk issued by Saudi Arabia’s Public Investment Fund (PIF) soon after the eruption of hostilities in the Middle East in October. The book for PIF’s debut dollar sukuk closed at more than $25bn. The unique sukuk structure based on equity shares made the blow-out issue a watershed moment for continued innovation and globalisation in the sukuk market.
A third notable deal was the $1.5bn sukuk from Egypt in February, which was oversubscribed by almost four times. “Considering the financing conditions facing the Republic at the time, the strategic issuance of $1.5bn priced at about 60bp inside its conventional curve was a tremendous achievement,” Asarpota says.
In the UAE, meanwhile, Emirates NBD has continued to act as a pioneer in innovative capital market solutions.
Following the UAE government’s launch of its local currency benchmark T-Bond/Sukuk Programme in 2022, Emirates NBD played an instrumental role in ideating “first-of-its-kind” AED-denominated deals across bond and sukuk formats, leading all the debut public AED issuances from financial institutions from the region. These included Emirates NBD Bank’s debut AED bond, Emirates Islamic Bank’s debut AED-denominated sukuk and the first-ever AED green sukuk by First Abu Dhabi Bank.
Against this backdrop, Asarpota is confident that Emirates NBD will continue to support accelerated internationalisation and diversification of the region’s capital market in 2024 and beyond.
“Every large bank is focused on the growth opportunities in the region, led by the UAE and Saudi Arabia,” he says. “This will encourage an increasingly diverse range of issuers to explore funding options in international and local currencies.”