DUBAI: Strong global demand for Qatar Telecom’s imminent 10-year bond offering could prompt the company to reconsider its decision to cap the issue at $1bn, especially if interest from the United States is robust.
Investors are expected to pile into the issue, viewing it as virtually a sovereign issue priced at a small premium to Qatar government bonds and as a rare chance to invest in a corporate bond in the cash-rich state, the world’s top liquefied natural gas exporter.
After price guidance was set yesterday, the issue from the majority state-owned telecoms operator was bid up +0.375 in grey trading, an indication of strong appetite for the paper, which is backed by Qatar Telecom’s (Qtel) solid A credit rating from Standard & Poor’s.
Market sources indicated that order books had already topped $11bn by 1000 GMT.
“There is likely to be strong demand for Qtel as investors are comfortable with “Qatar Inc” overall, and furthermore there is appetite for more corporate paper as much issuance so far has been from the banks and sovereigns in the region,” said Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi (NBAD). “Fixed income investors also tend to like telecom companies per se as they have a relatively simple business model with cash flows that are more predictable, and stable.”
Yesterday, Qtel set guidance for its new issue at a spread of between 175 and 180 basis points over U S Treasuries for the bond due in February 2023, and indicated it would cap the size at $1bn.
Options to invest in telecom sector bonds in the Gulf are limited although Bahrain Telecommunications Co recently said it would consider a debut bond issue as part of a $1bn acquisition financing plan.
In the United Arab Emirates, Etisalat has set up programmes for both conventional and Islamic bonds, but has yet to issue any.
NBAD’s Bhogaita said that although other Gulf telecom debt issues would be well received by investors, many would be first-time issuers and therefore would have to be “realistic” on pricing.
That adds to the appeal of Qtel, whose last venture into the debt market in late 2010 saw the company raise $2.75 billion in a heavily oversubscribed three-part sale.
Dilawer Farazi, portfolio manager at Invest AD in Abu Dhabi, said investors viewed Qtel as a play on the sovereign curve, but with a small premium over Qatar government bonds.
“Investors are typically getting over 50 bps of spread pick-up over the sovereign in an entity that is majority-owned by the sovereign,” Farazi said.
“The company is fundamentally strong, and with assets in Iraq, Algeria and Tunisia it has access to markets that should grow.”
Qatar issued a $4bn Islamic bond, or sukuk, earlier this year in a two-tranche deal which attracted orders of over $25bn in total.
The $2bn, 3.241 percent tranche maturing in January 2023 was yielding 2.8 percent on Wednesday, according to Thomson Reuters data, about 113 bps over 10-year US Treasuries.
At current guidance, Qtel is offering about 65bps premium over the sovereign, which should ensure a healthy order book. Two regional traders said they expected the launch guidance to tighten to 175 bps over US Treasuries.
“The reason people are anticipating such tightening is because allocations will not be satisfactory and the paper will be heavily oversubscribed,” said a regional fixed income trader, requesting anonymity.
Reuters
