Gulf companies are forced to turn to fixed-income markets as tighter capital at regional banks is drying up bank credit, their traditional funding source, the chief executive of Securities & Investment Co (SICO) said.
Fixed-income markets in the region are in an early stage of their development and lack the liquidity needed for secondary trading. Companies in the region have traditionally relied on bank loans with maturities of up to seven years for funding.
"Corporates will have to think a bit more originally about how to source themselves," Anthony Mallis told Reuters in an interview. Central banks in the region are watching capital levels at banks very closely after many of them had to book provisions against bad loans during the crisis, further dampening lending.
"The kind of access (regional banks) used to have to the foreign interbank market has substantially contracted." The regional market for initial public offerings (IPOs), another source of funding during the region's five-year oil boom that ended in 2008, has also not yet recovered. Mallis said investors in the region are increasingly turning to the bond markets after both regional equities and real estate markets were hammered during the financial crisis.
Dubai last week issues a $1.25 billion bond, which drew $5 billion in subscriptions.
Qatar Islamic Bank launched a $750 million Islamic bond on September 30, and Qatar Telecom mandates six banks for a US dollar benchmark bond.