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NBAD Woos Japan Investors With First Samurai Bond

Matilde Gattoni/Bloomberg

A branch of the National Bank of Abu Dhabi stands on the corniche in Abu Dhabi, United Arab Emirates, on Dec. 4, 2009.

A branch of the National Bank of Abu Dhabi stands on the corniche in Abu Dhabi, United Arab Emirates, on Dec. 4, 2009. Photographer: Matilde Gattoni/Bloomberg

July 18 (Bloomberg) — Andrew Freris, a senior investment strategist for Asia at BNP Paribas Wealth Management, talks about property prices in China and the nation’s fiscal outlook.
Freris also discusses Greece’s debt problems. He speaks in Hong Kong with Susan Li and Rishaad Salamat on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)

National Bank of Abu Dhabi PJSC (NBAD), the
United Arab Emirates’ second-biggest bank by assets, sold the
Persian Gulf region’s first Samurai bond last week as it seeks
to widen the pool of potential investors.

Diversifying the source of funding helps banks reduce risk
by providing alternatives should other avenues dry up. The yield
premium demanded by investors on emerging market bonds increased
on mounting concern the sovereign-debt crisis in Greece will
spread to Italy and Spain, and as rating companies said they may
lower the U.S.

State-controlled NBAD said July 12 it sold 10 billion yen
($127 million) of 15-year Samurai bonds, paying fixed interest
of 2.6 percent. Samurai bonds, securities issued in yen by a
non-Japanese company, are more likely to attract Japanese
investors because they’re subject to the country’s regulations.

“Japanese investors are very quality focused,” Anthony
Barklam, the London-based head of debt capital markets
origination for central and east Europe, the Middle East and
Africa at Mitsubishi UFJ Securities Holdings Co., said in an
interview. They “don’t invest to trade the bonds, they invest
to hold and get their money back.”

Issuers in the six-nation Gulf Cooperation Council, which
includes Saudi Arabia, the biggest Arab economy, and second-
ranked U.A.E., have raised $10.7 billion from 21 bond deals so
far this year, nearly all of which were dollar sales, according
to data compiled by Bloomberg. That compares with $13.4 billion
raised from 20 issues in the same year-ago period.

Declining Yields

The average yield on GCC debt has fallen 37 basis points,
or 0.37 percentage point, this year to 4.91 percent, according
to HSBC/NASDAQ Dubai GCC Conventional U.S. Dollar Bond Index.
The yield on National Bank of Abu Dhabi’s 4.25 percent $750
million bond due 2015 was little changed at 2.96 percent today,
according to prices on Bloomberg. The rate has dropped 95 basis
points, or 0.95 percentage point, from this year’s high of 3.91
percent in March.

Bond issuance from the Middle East and North Africa may
beat last year’s $40 billion total because of increased
borrowing requirements and a logjam after the Arab Spring,
Salman Al Khalifa, Deutsche Bank AG (DBK)’s regional head of markets
said June 14.

Dolphin Energy Ltd., a U.A.E.-based venture transporting
natural gas, and Tourism Development Investment Co., a
developer of hotels and museums in Abu Dhabi, held back bond
sale plans in the past two weeks following the volatility in
credit markets due to worries over Greece’s debt.

The extra yield investors demand to own emerging-market
debt over U.S. Treasuries widened 13 basis points last week to
314, according to JPMorgan Chase Co.’s EMBI Global Index.

U.S. European Debt

In the U.S., disagreements between President Barack Obama
and Republican lawmakers over raising the debt ceiling prompted
Moody’s Investors Service and Standard Poor’s to review their
credit ratings. Standard Poor’s said July 15 there was at
least a 50 percent chance it will lower the U.S.’s top-level AAA
ranking within 90 days, while Moody’s put the rating under
review for a downgrade on July 13.

Irish debt was cut to non-investment grade by Moody’s
Investors Service on July 12 on expectations it will need
further rounds of official financing, a week after it slashed
Portugal’s rating four levels to junk. Fitch Ratings downgraded
Greece by three levels last week to the lowest rating for any
country, saying a default is a “real possibility.”

Yen bonds

Still, “we’re not likely to see many Samurai deals from
the GCC, region unless issuers are prepared to do a significant
amount of work educating investors on their credit,” said
Barklam at Mitsubishi UFJ Securities.

While NBAD’s Samurai bond is the first such sale out of the
region, other companies have raised money in yen as part of
their euro medium-term note programs that were distributed
outside Japan. The share of Asia in the U.A.E.’s total imports
rose to 48 percent in 2010 from 42 percent in 2002, according to
central bank data.

Dubai Holding Commercial Operations Group LLC, a real-
estate and hospitality group owned by Dubai’s ruler, raised 10
billion yen from the sale of five-year notes in July 2008, while
state-controlled Abu Dhabi Commercial Bank PJSC, the U.A.E.’s
third-biggest bank by assets, sold 5 billion yen worth of five-
year notes in 2006.

Governments and companies raised 1.57 trillion yen ($19.8
billion) from 56 issues of Samurai bonds so far this year,
according to data compiled by Bloomberg. That is up from 841
billion yen from 31 issues in the same period a year ago.

Ringgit Bond

The Republic of Turkey sold the equivalent of $2.28 billion
from 10-year bonds in March in the biggest sale of Samurai bonds
so for this year. Issuers from Australia and South Korea have
been frequent sellers of the bonds this year.

NBAD has also issued bonds in other currencies to attract
new investors. It raised 500 million Malaysian ringgit ($166
million) in December from the sale of 10-year bonds. Emirates
NBD has sold bonds in Australian dollars, Singapore dollars,
Hong Kong dollars and the Thai Baht to diversify its fund base,
said Tony Bush, managing director for global funding at Dubai
government-controlled Emirates NBD PJSC. (EMIRATES)

“It’s important that regional issuers diversify their
funding sources whenever possible,” Bush said in a telephone
interview. “The Japanese market is very deep, but relatively
untested for Middle East issuers.”

To contact the reporter on this story:
Arif Sharif in Dubai at
asharif2@bloomberg.net

To contact the editor responsible for this story:
Claudia Maedler at
cmaedler@bloomberg.net