It’s time for the Middle East and European investors to court each other
Euro benchmarks from the Gulf are rare but this is the right time for that to change.
Emirates NBD looks to be considering making an opportunistic move into the currency, undertaking a European roadshow this week. Though bank issuers from the region have previously balked at the cost of entry to this market — which is a more expensive proposition than dollars — it should be becoming more and more attractive for them to pay the difference.
With the European Central Bank (ECB) bond buying programme in full swing, yields are compressing and traditional euro investors are looking to more global offerings to offer good returns. Many of the Middle East names tick the right boxes for this investor base — investment grade, stable institutions offering liquid bonds. Provided that the cost of entry is not exorbitant, Middle Eastern banks should take advantage of the conducive euro market — while it may irk treasurers to pay a higher immediate price, diversifying their investor base has been shown in the past to eventually bring the average cost of funding down for other issuers such as Turkey, and euro yields themselves seem to only be going down.
Emirates NBD is exactly the sort of bank that should be considering the currency. Its Baa1/A+/A+ rating will prove popular with the European buyer base and it has tested the currency before, issuing two private placements last year and a €100m public bond in 2008.
Despite higher levels of euro issuance last year than ever before in CEEMEA, non-euro funding borrowers from the CEEMEA region are still fairly late to the party.
Asian bank and corporate borrowers have stormed ahead of their CEEMEA counterparts. Those Asian issuers have raised €2.7bn in the euro market this year to date — this is over double the €1.3bn raised by CEEMEA banks and corporates, according to Dealogic data. Bank and corporate euro issuance comprises 18.5% of the euro CEEMEA market, and 5.6% of the Asian euro market, not counting Japan.
That the CEEMEA region has been quiet on this front is somewhat ironic given their geographical proximity.
The only question that should remain for Emirates NBD, and its potential euro investors, is pricing. Emirates NBD isn’t the first bank from the region to consider the currency this year — First Gulf Bank, which eventually priced a dollar deal though Citi, Deutsche, First Gulf Bank, HSBC and ING in February this year, is also said to have weighed up a euro trade before opting for dollars.
Since then the ECB’s inaugural round of quantitative easing has pushed more European issuer yields into negative territory. Euro investors should now be even more frantic to find something to buy that they don’t have to pay for the honour of holding. They should reflect that in the price they ask Emirates NBD to pay. If this deal goes well, there are other issuers waiting in the wings.
There have been euro benchmarks printed from the Gulf before, such as from International Petroleum Investment Company. But the euro deals of over €100m are rare — the last public market issue of over that amount was a €117m note for National Bank of Abu Dhabi printed in 2009. This could, and should, be the year that changes.