DUBAI, July 1 (Reuters) - Investors loaded up on Qatar Petroleum (QP) bonds this week ahead of an expected slowdown of government bond supply from the oil-rich Gulf region due to a rebound in crude prices.
QP’s $12.5 billion of bonds - the largest issue among emerging markets this year - received orders in excess of $41 billion on Wednesday, documents reviewed by Reuters showed.
Demand was partly the result of attractive pricing, with the paper offering roughly 10-15 basis points over Qatar’s existing government debt curve, according to investors and bankers.
It was also a chance for investors to release pent-up demand and buy large amounts of highly-rated paper from a 100% government-owned entity at a time when higher crude prices are reducing budgetary needs among Gulf energy exporters.
“A lot of funds are sitting with a lot of cash, and there hasn’t been (much) sovereign issuance,” said a banker who worked on the QP bond deal.
Qatar - rated AA-(minus) by Fitch and S&P Globl Ratings and Aa3 by Moody’s - has said it does not need to raise debt this year, and would only consider it to take advantage of low rates.
In April last year, it borrowed $10 billion in bonds against a backdrop of low oil prices and market uncertainty caused by the coronavirus pandemic.
Oil prices back then were at around $32 a barrel. Brent crude on Wednesday was trading at $75 a barrel.
QP, which supplies one in five liquefied natural gas (LNG) cargoes globally, will use the proceeds for operational and investment purposes, including for its North Field expansion project, the bonds’ prospectus said.
The project aims to raise Qatar’s LNG output to 126 million tonnes per annum (mtpa) by 2027 from 77 mtpa currently.
“This debt is to substantially expand their gas production and in the process re-rate the country’s GDP and substantially improve Qatar’s credit metrics,” said Dino Kronfol, Franklin Templeton’s chief investment officer of global sukuk and MENA fixed income.
“These transactions are an excellent example of productive debt, not debt that merely plugs deficits or pays for bloated bureaucracy,” he said.
Qatar’s economy could potentially double in size on the back of the LNG expansion plans, Bank of America has said, estimating nominal gross domestic product could reach around $300 billion by 2027. (Reporting by Yousef Saba Editing by Davide Barbuscia and Mark Potter)