Qatari banks plan to borrow more than $6 billion to finance a construction boom ahead of the 2022 soccer World Cup amid slumping oil prices.

Shareholders in Al Khaliji Commercial Bank approved a $2.5 billion bond programme on February 25, and QNB said on March 17 it arranged a $3 billion loan. Qatar International Islamic Bank (QIIB) may issue sukuk, or Islamic bonds, it said on February 19. Government deposits at Qatar’s banks more than tripled in the five years ended February 2014 before declining 4% the following year, central bank data show.

Qatar, a member of the Organisation of Petroleum Exporting Countries, is spending $182 billion, or 90% of its 2013 gross domestic product, on roads, stadiums and other facilities by 2019 to play host to the World Cup. Banks will probably boost lending to $239bn in 2018 to cater to a population that grew 9.5% last year, according to a QNB report in February.

“The halving of oil has reduced government deposits, yet expectations of a significant increase in future credit demand has meant Qatari banks are seeking to raise debt,” Akber Khan, director of asset management at Al Rayan Investment, said in e- mailed comments on Monday. “Banks need to go to bond markets.”

Lenders in the Gulf Co-operation Council have raised $7.2 billion through bond sales this year, up from $3 billion a year earlier, according to data compiled by Bloomberg. Atiq Ur Rehman, Citigroup Inc’s chief executive officer for the Middle East and North Africa, said in an April 7 interview that he expects “debt capital market and syndicated loan activity to be better this year.”

The average yield on bonds sold by Middle Eastern borrowers declined 21 basis points this year to 4.13%, according to JPMorgan Chase & Co’s indexes. The yield on Qatar Islamic Bank sukuk maturing in 2017 is down 45 basis points in the period. The bank said on January 18 it may issue another sukuk, and Masraf Al Rayan said it too is considering Islamic bonds.

Fitch Ratings upgraded seven Qatari banks in March on an “expectation of support from the Qatari authorities for domestic banks in case of need,” the agency said. The Qatar Investment Authority, the country’s sovereign wealth fund, has acquired stakes ranging from 17% to 50% in each of the eight banks listed on the Doha stock exchange, according to bourse data.

“Banks could be more active in issuance this year as we expect some relative weakness in local deposit markets in the Gulf region” and a “slight increase in cost of deposits,” F Timucin Engin, director of ratings for financial institutions at Standard & Poor’s Ratings Services, said on Monday in e-mailed comments.

Uncertainty about the degree of government support for banks is a concern for some investors, Fahmi Alghussein, chief executive officer of Amwal, an asset manager, said on Monday by phone. This uncertainty, coupled with a lack of standard rules and regulations for sukuk issues, have hindered the growth of debt markets in the region, he said.

“If we’ve learned anything from the financial crisis, it’s that there is a difference between implicit and explicit sovereign guarantees,” Alghussein said. “Unless it’s explicit, buyer beware.”
Government deposits at Qatar banks fell as crude tumbled by almost half since last year’s June peak. Qatar, the world’s largest exporter of liquefied natural gas, has faced a comparable decline in gas prices over the same period.

Borrowing costs may rise this year if the US Federal Reserve raises its benchmark rate. A majority of economists in an April 3-9 Bloomberg survey forecast the first rate increase at the Fed’s September meeting.

“Qatari banks are viewed as safe-haven assets,” Ataf Ahmed, head of asset management at Doha-based QInvest, said on Monday by e-mail. QInvest is “likely to hold some Qatari bank sukuk as a defensive measure in our client portfolios and funds” and sees a potential increase in interest rates as the main risk to the Islamic bonds, he said.

Source: Gulf Times