Emirates NBD (ENBD), the UAE’s biggest bank by assets, became the Middle East’s first issuer of offshore renminbi – known as dim sum bonds – on March 21.
It comes during an upsurge in foreign debt capital markets issuance this year from the Dubai-based lender, and as Gulf firms diversify from traditional funding sources in Europe.
The Rmb750 million ($119 million) three-year notes pay a coupon of 4.875%. The bookrunners were HSBC, Standard Chartered – both also among the bookrunners on the bank’s $500 million sukuk in January – and Emirates NBD Capital.
Second tap
HSBC then helped the bank tap the bond markets for a further Rmb250 million five days later.
All the bonds were oversubscribed, but in terms of allocation on the renminbi deal, 57% went to Hong Kong and China, and 30% went to Singapore.
"ENBD’s renminbi deal is the first of its kind in the region and it opens up a new market for GCC [Gulf Cooperation Council] borrowers," says Chavan Bhogaita, head of markets strategy at the National Bank of Abu Dhabi.
Bankers say there is potential for Gulf issuers to find funding via dim sum bonds, especially in the UAE, including Dubai – which is the regional trade hub and has an estimated 300,000 Chinese residents.
Political ties help. The UAE and China signed a currency swap arrangement for Rmb35 billion ($5.5 billion) in January, after a visit to the Gulf by Chinese premier Wen Jiabao.
Middle Eastern financial institutions have already tapped Asian currencies via samurai bonds and Malaysian ringgit sukuk. Now European banks are scaling back from peripheral markets, including the Gulf, in an effort to delever and build up capital back home.
According to a Moody’s report last month, the five biggest European economies account for just over half of foreign financing in the Gulf, or some $171 billion as of September. Meanwhile, many of the bonds and loans issued in the Gulf during the pre-crash boom of the mid-2000s are maturing over the coming 12 to 18 months.
Most at risk, says Moody’s, are Bahrain’s offshore wholesale banks. Indeed, the long-struggling Bahraini Islamic investment bank Arcapita finally filed for bankruptcy in the US last month, leaving liabilities of some $2.55 billion. The firm failed to restructure a $1.1 billion loan due in March.
The UAE, too, has aggregate refinancing needs of some $25 billion in both 2012 and 2013, according to the IMF. Much of this relates to government-related companies in Dubai – firms reliant on financing from ENBD.
Moody’s rates ENBD as A3. It has the bank on credit-watch negative, largely because it is still suffering from Dubai’s 2008 and 2009 debt and property crisis.
"[The] provisioning costs associated with these large [government-related issuer] impairments are likely to increasingly constrain the bottom-line profits," says Moody’s.
Multinational funding
However, multinational corporations are now funding operations in China through dim sum bonds, building up a market that was almost non-existent two years ago. Issuers include McDonald’s, Caterpillar, VW, BP, Air Liquide and Tesco.
Mexico’s América Móvil sold Latin America’s first dim sum bond in February.
"The Middle East is continuously developing its relationship with Asia and we expect funding opportunities to develop further as trade between these regions grows," says Michael Amorgianos, director, euro medium-term notes, at Standard Chartered.
Among the UAE’s other regular Eurobond issuers, bankers say Abu Dhabi’s state-owned investment firm Mubadala and Abu Dhabi Commercial Bank could be among the potential issuers of dim sum bonds.