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DUBAI, April 7 (Reuters) - Qatar sold $10 billion in bonds in tranches of 5, 10, and 30 years on Tuesday, the first Gulf state to raise cash in the debt markets against a backdrop of low oil prices and market uncertainty caused by the coronavirus pandemic.
The deal received over $44 billion in demand, two sources said, in a sign of strong investor appetite despite a plunge in crude prices that pushed up borrowing costs for governments of the oil-producing region.
A Dubai-based fund manager said that the deal was “successful” given its size.
“They had to probably pay up relative to a normal environment, but you have to expect something like that in these current circumstances,” the manager said.
Qatar offered interest equivalent to 300 basis points (bps) over U.S. Treasuries for a $2-billion five-year tranche, 305 bps over the same benchmark for a $3-billion 10-year tranche and 4.4% for the 30-year paper, a document issued by one of the banks leading the deal showed.
That was some 35 basis points below where it started marketing the paper earlier on Tuesday but still around 40 basis points above Qatar’s existing bonds due in 2024, 2029 and 2049, Refinitiv data showed.
The 30-year notes are Formosa bonds, or bonds sold in Taiwan by foreign borrowers and denominated in currencies other than the Taiwanese dollar.
“The bond sale’s success will depend on the pricing, which will determine investor appetite for a deal,” Castlereagh Associates, a London-based research consultancy, said in a note this week. “The Qatari leadership will want to steal ahead of its neighbours and demonstrate there is demand for the issue.”
Qatar hired Barclays, Credit Agricole, Deutsche Bank, JPMorgan, QNB Capital, Standard Chartered, and UBS to arrange the debt sale.
The presence of an American bank, JPMorgan, in the group of advisers was a sign that Qatar was aiming to tap as much global liquidity as possible, said a source close to the deal. JPMorgan declined to comment.
Only European and Qatari banks had arranged Qatar’s public dollar bonds after an embargo imposed on Doha by neighbouring countries since mid-2017 in a row over security issues.
The bond prospectus, seen by Reuters, said the new coronavirus outbreak could continue to hurt Qatar’s economy and financial markets, and could even lead to recession this year.
Qatar’s ruler, Emir Sheikh Tamim bin Hamad al-Thani, has asked the government to postpone $8.2 billion of unawarded contracts on capital expenditure projects, the prospectus said.
A government spokesman did not respond to a request for comment.
Lower oil prices have “had a significant impact” on state revenues and financial conditions, the prospectus said. The oil and gas sector contributed 83.3% of Qatar’s total revenue in 2018 and 34% of its total nominal GDP last year.
“Almost every economy will contract this year, and Qatar has done well with crisis management in the past ten years,” said Richard Segal, a senior investment analyst at Manulife Asset Management. “Thus, I don’t think investors will be too concerned.”
Other governments in the region are also exploring funding options.
“If oil prices are staying on average where they are, the whole Gulf will decide to issue bonds and obviously they’ll be competing on liquidity, so (Qatar) pre-empting on all of that and issuing before is not a bad decision,” the Dubai fund manager said. (Editing by David Goodman and Nick Zieminski)
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