Latest news with #FadyGendy
Zawya
05-05-2025
- Business
- Zawya
Dubai luxury developer Omniyat aligns sukuk issuance to right market conditions
With strong demand coming in, Omniyat's inaugural dollar sukuk issuance was upsized to $500 million from $400 million, indicating investor confidence in both the issuer and the depth of liquidity availabe for Islamic debt. With books at $1.8 billion, Omniyat was able to tighten pricing from the initial high 8% area to 8.375% -- deemed fair within the relative pecking order of UAE real estate companies. 'The pricing for Omniyat's sukuk was on point or slightly tight. Despite being 3.5 times oversubscribed with a $1.8 billion order book, the issuance is still trading around 100, indicating that there hasn't been a significant improvement in price. This suggests that the pricing was fair and did not leave much room for immediate price appreciation,' said Fady Gendy, a fixed-income money manager at Arqaam Capital Ltd. in Dubai. He pointed out that Damac Properties, an established luxury property developer, with its strong track record of financial discipline and resilience during negative market cycles, sees its debt trade at tighter yields compared to newer or smaller developers like Omniyat and Sobha. In any event, compared with issuers in other sectors, a higher coupon rate is required from the UAE's real estate developers to compensate for the risks associated with exposure to the emirates' high-end market. Fitch Ratings has assigned an expected rating of 'BB-' to Omniyat's sukuk, indicating a speculative grade with a moderate risk of default The developer focuses on the ultra-luxury segment, targeting high-net-worth individuals migrating to Dubai. 'This segment may be more resilient to general market cycles but also presents a concentration risk,' said Gendy. Omniyat has a large pipeline of projects with the funds from the sukuk issuance utilised to support its growth plans. According to Gendy: 'The Dubai real estate market currently has strong metrics, with positive momentum in property sales and home prices. Issuing now allows Omniyat to capitalise on favorable market conditions before any potential decline due to global growth slowdown or lower oil prices.' The timing also gives Omniyat an advantage before the market becomes crowded with other real estate issuances. Other local companies like Sobha Realty and Azizi Developments are also rumored to come to market soon. Preferred asset class The appetite for sukuk is high, among both Islamic and conventional asset managers. In addition, real estate is a preferred asset class among investors in the Middle East due to its familiarity and historical significance. 'In the hunt for yields, asset managers have started looking beyond the established players like Damac, Emaar etc. to the likes of you know Binghatti Properties, Sobha Realty, and even Arabian Centers,' a regional asset manager told Zawya. Despite the risk premium that real estate developers have to pay--given that they don't put up a collateral--there are several advantages for them to raise debt than to take bank loans. Issuing sukuk and bonds allow developers to diversify their funding sources, which is particularly beneficial if they have hit their borrowing limits with banks. This diversification also helps preserve bank liquidity for a rainy day. Gendy said sukuk and bonds could have less restrictive covenants attached to them. 'Typically, the language in docs on the sukuk and bonds may be less tight, less onerous than what issuers would see with bank lending, so that's another advantage.' A third advantage for debt issuers is that sukuk and bonds can offer longer-term borrowing options that are typically not available through bank loans. 'For example, investment-grade developers like Emaar Properties and Aldar Properties can issue debt with longer tenors of seven to ten years, which would be more challenging to secure from banks.'
Zawya
12-02-2025
- Business
- Zawya
A sovereign debt issuance from Kuwait seems imminent. How keen are investors?
Any sovereign debt issuance from Kuwait, after a gap of eight years, is expected to be met with a favourable response from investors, despite a recent statement by the IMF that the oil producer's economy is in recession. 'I expect there will be strong appetite for Kuwait's return to the eurobond market after an eight-year hiatus,' said Fady Gendy, Fixed Income Portfolio Manager at the Dubai-based Arqaam Capital. On Monday, Finance Minister Noora Al Fassam said that Kuwait was prepared to return to international debt markets soon. A recent media report also said Kuwait's cabinet is expected to approve a new law that could enable $65 billion to be raised over 50 years. Kuwait's last issuance was in 2017, just before the previous debt law expired. The passage of a law that would allow it to return to the debt markets has been stalled for years by infighting between fractious parliaments and cabinets. In May 2024, the Emir of Kuwait dissolved the cabinet and suspended parts of the constitution for four years. The plan was that, in the interim, the government would undertake a review and propose amendments within six months. Eight months later the cabinet still legislates by passing decrees with the Emir giving the final stamp of approval. Kuwait, which accounts for about 7% of the world's hydrocarbon reserves, depends on oil receipts for up to 87% of revenue. The OPEC+ oil production restrictions have squeezed Kuwait's oil exports, and, by extension, its revenue inflows. The IMF has forecast a 2.8% contraction in 2024, followed by a recovery in 2025 as the production cuts unwind. In its budget for 2025-26 announced last week, Kuwait pencilled in a deficit of $20 billion, or 13% of GDP. 'Considering oil prices have been lower than what Kuwait has budgeted and are expected to continue at the same level — provided there aren't any significant geopolitical events and changes in the OPEC+ agreed production cuts — raising of debt could help address any slowdowns in the implementation of economic reforms planned by the government and help manage part of the fiscal deficit,' Bhavesh Gandhi, Partner at KPMG in Kuwait, told Zawya. Investor appetite A potential sovereign issuance will be backed by very strong external buffers, including liquid assets of the Kuwait Investment Authority (KIA) and very low level of public debt. S&P Global Ratings estimates the KIA's total assets, including the General Reserve Fund (GRF), a liquid fund that is used to finance deficits, and the much larger Future Generations Fund, to average 447% of GDP from 2024 to 2027. In the absence of a debt law, the government is forced to dip into the depleting GRF to fund its fiscal deficits. 'Demand will primarily come from a mix of local buyers, including bank treasury desks for whom Kuwait risk will carry zero or minimal capital charge, as well as rating-sensitive international buyers, predominately from Asia. Emerging market-dedicated and crossover investors may be less inclined due to the low yield and spread, a position reflected in their current underweight stance on the other AA/A-rated GCC sovereign credits,' said Gendy. Kuwait's only outstanding eurobond issued, maturing in March 2027, is now yielding around 4.70%. In comparison, the Abu Dhabi eurobond maturing in October 2027 yields around 4.50%, reflecting Abu Dhabi's higher credit rating and lower break-even oil price. The credit profile of Kuwait is on par with the best in the region, affirmed Ansari. 'So, pricing of Kuwaiti bonds/sukuk is not expected to be very different from the recently issued bonds from regional sovereigns.' KPMG's Gandhi said while yields are expected to remain tight, Kuwait's AA- rating would present investors with a risk diversification opportunity. No urgency, however The debt law, which has been discussed in Kuwait's Parliament previously, was opposed by most of the MPs, who wanted fiscal reforms measures to be passed first. 'One of the pillars of the National Development Plan, i.e., Vision 2035, is a sustainable diversified economy. We are seeing the Kuwait Government move in that direction. Having said that, passing the Debt Law could support the diversification efforts, as the government will be able to launch infrastructure and tourism projects that may have come to a standstill,' added Gandhi. According to the Fitch Ratings forecast for FY 2025, assuming a resumption of borrowing, 30% of Kuwait's deficit would be financed by debt issuance. Its current outstanding debt is around $9 billion, according to LSEG data. Junaid Ansari, the director of investment strategy and research at Kuwait-based Kamco Invest, said, however, that there is sufficient projects activity in the country, and that coupled with the current oil price at above the $75/barrel mark, any urgency to issue debt to finance fiscal deficit has subsided. In fact, he expects the fiscal deficit to fall below the budgeted amount. 'We do not expect the government to hurry in issuing sizeable bond/sukuk. However, we can expect a few issuances that are aimed at merely entering the market and testing demand.' According to him, the Kuwait government is serious about expanding the non-oil sector. 'This was evident from the activity in the projects market in Kuwait during 2024, with project awards at KWD 9.5 billion, the highest since 2017. And the bulk of these projects were driven by the government. We can expect to see an acceleration in non-oil activity in the near term.' (Reporting by Brinda Darasha; editing by Seban Scaria)
Zawya
05-02-2025
- Business
- Zawya
Has Egypt turned the corner? An IMF deal and brisk bond sales would seem to suggest so
The battered Egyptian economy (Caa1 [positive] by Moody's; B- by S&P [positive], B [stable] by Fitch) looks set to bounce back this year after a series of positive events--both external and internal--unfolded in recent months. This was well evidenced last week in the global debt markets when $2 billion of sovereign bonds were snapped up by investors at very favourable pricing for the government. International investors seemed to have taken note of the fact that Egypt has taken steps to improve its macroeconomic stability, including maintaining a flexible exchange rate for the pound. The IMF agreed to unlock about $1.2 billion in funds after Cairo agreed to speed up tax reforms, accelerate privatisation of state-owned companies, build fiscal buffers to reduce debt vulnerabilities, and undertake other such measures needed to reset the economy. The bank has estimated that Egypt's economy will grow by 3.6% in 2025, up from 2.4% in 2024. Foreign reserves have surged to an all-time high of $47 billion, and foreign portfolio investors have returned. 'Our view is that Egypt is an improving credit story, and that's reflected in the fact that it has regained eurobond conventional market access for the first time in four years and was able to print in size at $2 billion. We are also seeing the improving fundamentals reflected in the credit rating upgrades and the positive outlooks by the rating agencies, so we do feel that Egypt has turned the corner,' said Fady Gendy, Fixed Income Portfolio Manager, at the Dubai-based Arqaam Capital. The bond sale was in two tranches: $.25 billion in five-year and $750 million in eight-year bonds, with yields at 8.625% and 9.45%, respectively, which came in tighter than the initial price guidance. The sales were conducted under the country's global medium-term note programme, which aims to raise $40 billion, the proceeds which will be used, among other things, to finance a portion of the fiscal deficit, according to a base offering circular published on the London Stock Exchange. New confidence 'From the perspective of the government, the issuance was a success. It was well telegraphed, so investors were prepared for the issuance, and that allowed the government to do a drive-by issuance, which is very rare for an Emerging Markets (EM) single B rated issuer, and that confidence was also reflected in the tight pricing, especially on the eight-year bond,' said Gendy. A Dubai-based banker said that investors tend to view Egypt as an extension of the GCC, particularly after the $35 billion investment by the UAE's sovereign wealth fund, ADQ, to acquire the rights to develop the Ras El-Hekma project on the Mediterranean coast. Moreover, the scarcity value of the recent issuance, with Egypt having hit the global market after a four-year hiatus, also led to it being multiple times oversubscribed, he added. The yield curve for Egypt bonds still offers some value versus peers, especially the long end, which is yielding about 11.0% despite being flattened recently. 'At the very short end, the bonds that are of 3-to-5-year maturity have definitely tightened in yield, but that's a function of the very strong local bid for the front end of the curve. International demand is typically more geared towards the belly and the long end of the curve.' The government aims to raise $3 billion in global debt by the end of the current fiscal year that ends in June 2025. It is due to repay €750 million in April, followed by $1.5 billion in June and $750 million green bonds in October, according to a Reuters report that cited the Egyptian finance ministry. 'We expect that before the end of the current fiscal year, that is by June-end, Egypt will return to the eurobond market with a dollar-denominated sukuk sized between $1 and 1.5 billion, which, when you add to the $2 billion last week, means Egypt has officially returned with $3 to $3.5 billion. This is in line with what the Finance Ministry is guiding for, that the total eurobond issuance will be in the range of $3 to $4 billion in any given fiscal year, and not more, as it wouldn't want to flood the market,' said Gendy. Egypt's debt-to GDP ratio has fallen by 7% in FY 2023-24 and while it is still at elevated level of 89%, the government is committed to reduce it to below 80%, as part of the IMF loan agreement. The bank expects the budget deficit to remain high at over 10% of GDP in 2025, mainly due to high debt service costs. Meanwhile, country received the first tranche of the European Union's 7.4 billion euros ($8 billion) financing package, amounting to €1 billion early in January and is in talks to secure approval for a second tranche valued at €4 billion, according to the Egyptian media. Moving along the yield curve Foreign investors are now the majority holders of Egypt's local debt. Following the UAE's investment in Ras El-Hekma and the devaluation of the pound last March, there was a large inflow of foreign portfolio investors into treasury bills, highly liquid short-term instruments giving double digit yields of between 20% to 30%. January's bond issuance is expected to extend maturities. 'Investors are now extending along the domestic curve and buying the two-year and three-year bonds to lock-in yield in advance of what we expect to be a very aggressive rate cutting cycle by the central bank in Egypt as inflation comes down,' Fady said. Goldman Sachs which expects to see deep rate cuts during the year, maintained its forecast of interest rates dropping to 13% from the current levels of 27-28% by the end of the year. Farouk Soussa, Goldman's MENA economist said in a note this could lead to 'greater issuance across the curve, including in long-dated Treasury bonds' Apart from the IMF deal, the spectrum of good news for Egypt includes the ceasefire in the Hamas- Israel conflict that could cool down the tensions in the region. The Houthi rebels in Yemen have said they will allow maritime traffic to resume through the Red Sea, a development that will benefit Suez Canal, which has seen revenues drop more than 60% resulting in a loss of $7 billion from 2023. The resumption of Suez Canal traffic could add up to $5 billion to the current account, according to Egypt-based CI Capital. With so many moving parts in play, Egypt must remain committed to the structural reform agenda, including the drive to privatize state-owned companies if only to ensure international lenders and its GCC neighbours continue to provide the critical financial support. As James Swanston, MENA economist at Capital Economics said in a recent note: '…if investors perceive that Egypt's progress on reforms is stalling, they could seek to pull their investments out'. (Reporting by Brinda Darasha; editing by Seban Scaria)
