A spate of euro bonds is set to emerge from the Gulf, a region that has determinedly clung to dollar issuance. Diversification for a borrower makes sense, even for those that do not seem to need it.
When considering issuing bonds in currencies away from the dollar, the mantra in the Gulf has largely been why bother?
It takes effort to court a new investor base and in any case, dollar issuance makes the most sense for countries that earn so much from oil, which they sell for the US currency.
Not only that but pricing has been cheaper in dollars and the depth of other markets has been unappealing. For the biggest Gulf issuers the amounts that could be raised in euros seem a drop in the ocean. Non-dollar issuance has seemed require a lot of high effort for little reward.
Despite rumblings of investor discontent around how much volume issuers are raising in the dollar market, new issue premiums have been slim.
Aside from a few borrowers with natural funding needs in other currencies, few have heavily pursued non-dollar options.
But the time has come for that to change. The concerns around heavy issuance will rise and it always helps for investors to see that issuers have multiple routes of funding when they need it.
Issuers would do well to embrace thinking more globally for their funding to reduce pressure on their yield curves. That means more bonds in euros, Asian currencies, and taking on more 144A documentation to sell to onshore US investors.
This week the cross-currency basis swap between dollars and euros was such that one issuer — the Qatar bank QNB — could raise euro debt for a similar to cost to where it could have issued in dollars.
That will prompt a flurry of similar deals while conditions last.
As borrowers in other asset classes have discovered, however, even if the arb doesn't last long, there are long-term benefits to building an investor base in a new market. These range from having ready buyers in one market when another is shut as well as ensuring demand for bonds outstrips supply, driving down borrowing costs.
Gulf issuers are lucky they now have a financially compelling reason to plunge into new investor pools.