Europe's deepening debt crisis has put yet another damper on fund-raising by companies and governments in the Middle East, forcing them to put off planned bond sales until markets improve.
Dolphin Energy, a gas production and pipeline company based in Abu Dhabi, delayed a US$1.9 billion (Dh6.97bn) bond sale last month because of increasing uncertainty in global markets after holding meetings with investors.
Last week, Majid Al Futtaim Holding, a malls operator based in Dubai, also postponed a bond issue in the wake of the deteriorating European crisis.
Abu Dhabi's Tourism Development and Investment Company, which recently issued a prospectus for a new round of sales under its $3bn medium-term note programme, is one of a rare few companies in the GCC pushing forward in the current climate. The company revealed in the prospectus it had slashed budgets for this year and scaled back some projects.
"When risk aversion starts to take over, it's going to take over everywhere, whether it's in Europe or the Middle East," says Ziad Shaaban, the head of fixed income at EFG-Hermes in Dubai. "The crisis does affect us and very recently two new [bond] issues in the market were postponed because the appetite wasn't there."
Greece last week secured an additional round of aid from the EU and IMF as leaders tried to shore up the embattled euro-zone nation's finances and prevent a default.
But fears of a spreading sovereign debt crisis in Europe's single currency bloc are running high following a decision on Tuesday by Moody's Investors Service, one of the world's big three credit ratings agencies, to downgrade Portugal to "junk" status.
With some debt issues already on hold and the traditionally slow Ramadan period approaching in the Gulf, observers say it is now unclear whether companies looking for billions of dollars in financing from international investors will be able tap into new capital before the end of the summer.
Earlier this year, a wave of companies and governments from the Middle East obtained finance from international markets, including the Dubai Government and Emirates Airline.
They took advantage of a strong rebound in global credit markets. Now, however, that window of opportunity appears to be shut.
"I expect very little to come to the market between now and post-Ramadan," said Mark Watts, the head of fixed income at the National Bank of Abu Dhabi.
"It's a truism that in this part of the world institutions require senior sign-off, and a lot of senior people simply aren't there [in the summer]. It's a logistical issue. The window is effectively closed."
While the debt-raising party might be over for now, economists and bankers say the outlook for the Gulf is turning positive, thanks to high oil prices and huge public spending programmes that are pumping money into the private sector.
Brent crude prices are currently above $115 per barrel, helping to fund government spending such as Saudi Arabia's promise of $120bn for infrastructure projects earlier this year.
"Heading into the slower summer months, the outlook for the GCC economies remains positive," said Tim Fox, the chief economist at Emirates NBD.
"Oil production has risen steadily since the end of 2010, and will continue to underpin growth in the hydrocarbon sectors in Saudi Arabia, the UAE and Kuwait. Higher than forecast oil revenues in [the first half of] 2011 will help to finance increased government spending, particularly in Saudi Arabia, and will support non-hydrocarbon growth in the GCC in 2011."
Adding to optimism about debt sales by local companies and governments, Mr Shaaban said GCC bond prices had shown resilience in the wake of the European crisis. Among other things, the $500 million bond Dubai launched last month has climbed by 1.4 per cent in price since June 27.
Mr Watts, who is bullish on credit markets in the medium term, said the hope was for a post-Ramadan increase in bond sales such as was seen in the region towards the end of last year.
"The more time we put between the events of 2008 and 2009, the more that will be signed to the annals of history," he said.
"Peoples' memories don't tend to be that long. The oil price is still on average at a comfortable margin above the break-even [government budget price] for most countries, so that's delivering windfall fiscal gains and will have a knock-on effect on the economy and industry."
Moreover, the bond sales postponed by Dolphin Energy and Majid Al Futtaim were opportunistic in nature, Mr Watts pointed out, and those companies would probably court international investors again once markets settle.
Withdrawing the issues was "very rational", he said, as the market had been overheating this year and investors began to suffer from a bout of "GCC credit market fatigue" after the pricing on Dubai's bond came in higher than expected last month.
"The tone of the market was saying this is indigestion," he said. "This was the first sign we've had a very heavy meal and we've had a bit too much."
Despite those pangs, however, a smattering of brave companies are forging ahead with plans to raise money from foreign investors.
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