October 23, 2017 / 3:18 PM / a month ago

Bankers steer Qatar towards open-door policy

* Bankers downplay rumours of sovereign’s return

* Funding costs expensive relative to peers

By Robert Hogg

LONDON, Oct 23 (IFR) - Bankers are advising Qatar to invite a broad church of banks into any potential bond sale to smother fears of Doha drawing a dividing line over a regional diplomatic crisis.

Qatar has been in talks with international banks to gauge interest about a potential bond sale, according to sources, though they say there are no firm plans yet to break an issuance impasse.

No Qatari entity has sold a public bond since Qatar was accused in June of backing terrorism by Saudi Arabia and its allies - a charge Qatar denies.

While one of Qatar’s banks could come to the market first, it’s the sovereign that the market is watching most closely.

One banker in Dubai said that it was best for Qatar to avoid sending a signal that it is asking banks to choose sides in the dispute. “We are advising Qatar to invite a wide range of banks on to the ticket,” he said.

“If they just pick banks that, for example, don’t have business in Saudi Arabia then it will look like - intentionally or unintentionally - they are drawing a line between banks they will and won’t work with. It’s better not to create that divide.”

One tactic Qatar could deploy would be for it to only hire global banks in which the government holds stakes, such as Barclays, Credit Suisse and Deutsche Bank, as well as locals. That would be in contrast to its previous transactions, which have seen a big pool of firms mandated.

For many international banks, given the delicate nature of the situation, any decision about working on a potential Qatari bond could require clearance from the very top. “We would have to have discussions internally,” said a second banker.

It may be that any immediate decision may not be needed as Qatar has little financial urgency or need to raise funds and no firm commitment has yet been reached on when the sovereign will issue.

“They are not planning anything imminent. There are various layers of bureaucracy to go through so it is hard to get a direct line to the decision makers. But there’s not a sense that it is going to happen right now,” said the banker in Dubai.

A third banker said that documents for a potential bond sale are not ready yet, so even if a decision to act was taken soon, any transaction would be unlikely to materialise before mid-November. The size of any deal is also said to be an open question.

ATTRACTIVE PREMIUM

Any new issue would probably require Qatar (Aa3/AA-/AA-) to pay an attractive new issue premium at a time when its bonds already trading at a very wide spread for its ratings.

Its June 2026 notes, for example, trade at a Z-spread of 126bp, according to Tradeweb, while Abu Dhabi (Aa2/AA/AA) has March 2026s at plus 80bp and lower-rated Saudi Arabia (A1/A-/A+) has October 2026s at plus 112bp.

Richard Briggs, an emerging markets strategist at CreditSights, said Qatar would have to “pay larger concessions” than other investment-grade rated GCC sovereigns have on their recent transactions because of the diplomatic crisis.

Qatar last issued a bond in June 2016 when it raised US$9bn through three tranches with maturities of five, 10 and 30 years.

It sold a US$3.5bn 2.375% due 2021 at 120bp over Treasuries; a US$3.5bn 3.25% due 2026 at plus 150bp; and a US$2bn 4.625% due 2046 at plus 210bp. Total demand for that deal was about US$23bn. (Reporting by Robert Hogg; editing by Sudip Roy and Ian Edmondson)

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