Bloomberg 

JPMorgan Challenges HSBC for GCC Bond Crown as Sales Set Record

By Arif Sharif 

October 5, 2016

British bank’s nine-year streak at top may be broken

Middle East dominates bond-sale plans in emerging markets

In the hottest battleground for emerging-market bond deals, JPMorgan Chase & Co. is outflanking HSBC Holdings Plc for the first time in a decade.

The New York-based bank is threatening to dislodge its British rival as the biggest arranger of new issues in the Gulf Cooperation Council after topping the league table at the end of the third quarter, data compiled by Bloomberg show. JPMorgan is moving up because governments and companies in this Middle Eastern region are borrowing more than ever and wooing American investors to soak up the extra supply, according to Matthew Hartley of law firm Allen & Overy LLP.

Bond sales in the six-nation GCC rose to a record $44 billion in the first nine months of 2016 as crude prices below $50 a barrel pushed issuers to cover their revenue shortfalls with debt. Business for global investment banks continues to boom in the fourth quarter, with Bahrain raising $2 billion and Saudi Arabia and Kuwait said to be seeking $20 billion between them.

“JPMorgan have a very good emerging-market franchise and they have made more of a push in the region over recent years,” said Hartley, a London-based partner at Allen & Overy, the largest legal-advice firm for sukuk and Islamic financing by transaction value. “Since access to the American market would be key for some of these issues, JPMorgan would have an advantage there.”

The U.S. bank’s ascent to the top was the result of its participation in some jumbo sovereign deals including a $9 billion offering by Qatar, a Middle East record, Abu Dhabi’s $5 billion sale and Oman’s two deals that collectively raised $4 billion.

Record Broken

Bond sales from the region have already crossed the $43.6 billion issued in all of 2012, the previous record. The combined budget deficit of the GCC nations is projected to rise to 12.3 percent of gross domestic product in 2016 compared with a 3.3 percent surplus two years ago, while growth is expected to slow to 1.8 percent, almost half the pace last year.

“We expect an abundance of primary-market issuance from the Middle East,” Doug Bitcon, a fund manager at Rasmala Investment Bank Ltd. in Dubai, said by phone from Dubai. “If you look at credit spreads, the region’s governments, financial institutions and corporates would be crazy not to tap the market.”

Lender-Adviser

HSBC’s nine-year streak as the region’s biggest deal maker had been built on the back of its deep lending relationships, with the bank usually managing transactions for its clients. The latest data show that the lender’s rank actually falls to third when issues it has led for itself are excluded. However, HSBC remains the top arranger of syndicated loans in the GCC, which have surged 27 percent this year to $81 billion. JPMorgan is third on that list.

Both JPMorgan and HSBC declined to comment on the league rankings.

“If you assume oil prices remain at around $50, there is likely to be a similar funding need from those sovereigns as we’re seeing this year,” said Stefan Weiler, the London-based head of debt capital markets for central and eastern Europe, the Middle East and Africa at JPMorgan.

Other contenders for the top slot are Standard Chartered Plc, currently ranked third, and Bank of America Corp’s Merrill Lynch unit, which climbed 28 places to sixth after being picked for the Qatar and Abu Dhabi deals.

Japanese banks are flocking to the GCC too. Mitsubishi UFJ Financial Group Inc. vaulted 40 places to seventh on the league table as it took part in the Qatar and Oman loans both as a lender and as an adviser. Mizuho Financial Group Inc. jumped to the 10th place this year from 32 via the Qatar deal. National Bank of Abu Dhabi PJSC is the highest-ranked local lender on that list at No. 5.

A Dow Chemicals joint venture with a state-owned Kuwaiti company plans to raise as much as $3 billion this year, people familiar with the matter have said. Both JPMorgan and HSBC are among the sale managers, according to the people.

Issuers “are doing bigger or longer-dated deals and they need to access a wider investment base in the U.S., Asia and Japan,” Abdul Kadir Hussain, head of fixed income asset management at Arqaam Capital Ltd., said by phone from Dubai.