Qatar's approach to the international debt market displayed all the signs of the first time swimmer. Qatar skirted the markets cautiously, unwilling to dip its toe in. When, after many months of speculation, it finally plucked up courage to offer a sovereign bond, it was poorly prepared.
Unwilling to provide full and transparent accounts on the state of the economy, the issuer dived in, and promptly did a belly flop. The offering was cancelled after the launching, an almost unheard of outcome. But, says one London-based banker, the need for capital has since persuaded the government to look at a number of different types of sovereign issues. The question is now, has Qatar mended its ways?
In the past, Qatar had, like most of its Gulf neighbours, believed that high oil production was the panacea for all its financial problems. In a bid to increase oil revenues, the government has long welcomed foreign capital, opening up the energy sector to cash rich oil companies well before many of its Gulf neighbours. The move to access capital markets was the next stage in attracting outside investment to gas projects. Syndicated loans were arranged for government-owned Liquefied Natural Gas (LNG) producer, Qatar LNG (Qatargas). The loans - which were for around 70 per cent of the US$6 billion total cost - were regarded as "attractively priced." In a buoyant market at end 1996, US$1.2 million of Ras Laffan LNG (Rasgas) bonds were issued. Generously priced at 135 basis points (bp) over Libor; the issue was three times oversubscribed.
But by 1998 the world economy had started to look very different. In Qatar government finances were under threat from cuts in production. Qatari production fell from highs of 710,000 bpd at start 1998 to end the year at 640,000 bpd. More seriously, government finances were hit hard by plummeting oil prices. At end 1997, benchmark Brent crude slipped from its long standing pedestal of US$19+ per barrel and went into free fall. By end 1998, it had dipped below US$10 per barrel, its lowest nominal price since the 1986 crash and lowest real price since 1972. Although - as usual - Qatar calculated the 1998/9 budget according to what was hitherto perceived to be the conservative estimate of $13 per barrel, in 1998 Qatari crudes recorded lows of US$10.08/b (Dukhan) and US$9.78 (Marine).
In the midst of the downturn Qatar made its first foray into the international debt market, issuing its first international sovereign bond for an...