JPMorgan sees Gulf bond sales slipping as rates, volatility rise

People pose for a picture on the Palm Jumeirah island with a view of Dubai Marina area of Dubai, United Arab Emirates. (Bloomberg pic)

DUBAI: JPMorgan Chase & Co., one of the biggest arrangers of Gulf bond deals, expects sales to slip in 2019 from last year’s US$78 billion as issuers turn cautious amid rising interest rates and market volatility.

In the past, when there has been uncertainty either “in rates or in spreads, regional issuers tended to become more careful and price sensitive,” Hani Deaibes, the US bank’s regional head of debt capital markets, said in a phone interview from Dubai. “Most of our clients have multiple funding options and will consider other alternatives” if bonds turn too expensive, he said.

Borrowers from the six-nation Gulf Cooperation Council, which include the two biggest Arab economies of Saudi Arabia and the United Arab Emirates, primarily sell bonds in dollars and two further interest rate hikes forecast in the US this year will add to costs. The possibility of economic growth stalling in the US and China, the trade dispute between the world’s two biggest economies, political turmoil in Europe and falling oil prices are all contributing to volatility in financial markets that will make potential issuers uncomfortable.

GCC bond sales got off to a robust start this year as Saudi Arabia raised US$7.5 billion from a two-part deal on Jan 10. JPMorgan, the fourth biggest arranger of GCC bond sales in 2018, was one of five managers.

Prospective issuers may turn to bank loans for funding if bond-market volatility increases. GCC syndicated loans surged 54% to US$114.5 billion last year, when foreign and local banks were flush with liquidity.