Tuesday, 3 October 2017

GCC needs more convertible bond issuance to satisfy investor demand

  • Investors are actively looking for new GCC convertible bond exposure
  • Key programmes such as Saudi Vision 2030 and Dubai Expo 2020 will grow international awareness of companies in key sectors
  • Saudi Arabia equity market expansion will create fresh demand
  • GBSA workshop in Dubai discusses the opportunities presented by convertibles with leading regional fund managers, investors and issuers

Fisch Asset Management, a global leader in convertible and corporate bond strategies, has said that key economic programmes such as Saudi Vision 2030 and projects such as Dubai Expo 2020 will facilitate greater investor interest in, and awareness of, potential GCC convertible bond issuers across diverse sectors, including infrastructure and real estate.

Convertible and exchangeable bonds are unique and highly flexible forms of corporate financing that can be an attractive option for companies seeking to raise money or monetise equity stakes.
There is currently strong investor appetite for GCC convertible and exchangeable bonds, in particular when issued using standard structures rather than Sukuks.

Philipp Good, CEO of Fisch Asset Management, commented:

“We expect issuance of conventional corporate and sovereign bonds in Q4 2017 to remain high, in part owing to the strong level of interest from global investors. In contrast, there has been no GCC equity-linked issuance since 2015. While the landscape for conventional bond issuance across the GCC remains encouraging, we believe that convertible and exchangeable bonds are an untapped opportunity for GCC issuers.”

There are a number of opportunities presented by convertible bonds in the region. The GCC is home to numerous accessible and liquid underlying stocks, while Saudi Arabia’s equity market is rapidly expanding and becoming increasingly open to Qualified Foreign Investors (QFIs). Issuers can maximise investor demand by tailoring the structure, size and terms of their equity-linked issues to the current sweet spots within the equity-linked market.

Martin Haycock, Senior Partner – Convertible Bonds, at Fisch Asset Management, said:

“Middle East convertibles have undergone a decade of evolution since the US$3.5bn pre-IPO sukuk into DP World launched the GCC convertible bond market in January 2006. Since this time, 20 issues with notional value of US$23bn have been issued in the region, with financial services and real estate companies comprising the majority of issuance. We believe the time is right for this market to expand further.”

Fisch Asset Management, in partnership with The Gulf Bond and Sukuk Association (GBSA), held a workshop in the Dubai International Financial Centre (DIFC) on 2nd October on the topic of Convertible Bonds in the Middle East. The event analysed the untapped opportunities for both issuers and investors in GCC markets and offered insights into the future of this asset class in 2018 and beyond. The event was attended by leading regional investors, fund managers, capital market advisories and issuers.