Emirates NBD took a leap this week to reopen bond issuance in the Gulf, after a two month interruption caused by the US-Israeli war on Iran.
The $750m additional tier one capital deal was bold, but also clever. Emirates NBD got ahead of a huge queue of banks waiting to issue AT1, which could conceivably become later this year a bigger pricing hurdle for issuers than the war.
ENBD's 6.25% perpetual non-call six year was an unusual market reopener. It was not a sovereign bond — and indeed went right to the bottom of the capital structure.
The sale went well — the book was strong, peaking at $2.5bn, and pricing was tight, even compared to pre-war levels.
There were some grumbles about the allocation to international accounts only being 24% — the market had hoped for 30%, to show convincing international demand.
But the issuer picked price over distribution, and the capital has been secured. For ENBD it was a slam dunk.
But for the issuer, the success may be greater even than that, when one considers the rest of this year.
Even putting aside how market volatility caused by the war will play out, Gulf banks have a gargantuan amount of AT1 paper to refinance.
GlobalCapital counts 14 notes with call options this year, and the effect of the war on bank balance sheets is still to be made clear in second quarter results.
That volume of AT1, much of which was printed in 2021 to bolster banks in the midst of Covid, would be a challenge for the market to refinance, even in stability.
The CEEMEA market has seen previous examples, such as from Turkey, of how fatigued investors can become when faced with a string of similar bonds.
And that is even before there is any consideration of how and when the war will end or what happens until then.
Demand for Persian Gulf bonds has felt resilient in the last couple of months, even as war came to the region.
Though the public market shut down, it wasn’t long before the sovereigns were printing huge private placements.
Managing the flood of bank supply that is to come may, by the end of this year, be a tougher task for treasurers.