Global markets dived last week on fears of a sovereign default by Greece, sending spreads very wide, before recovering earlier this week on the European Union's pledge of a stabilization fund for debt-stricken members.

"Investors have learnt to differentiate between emerging market debt," said Klaus Froelich, who heads up Morgan Stanley's capital markets division for the region.

"The current market is choppy, and some issuers may decide to wait, but this should be temporary. There is a strong pipeline, and tremendous liquidity. People will reassess risk and look at the underlying balance sheets."

There have been a handful of bond issues - mainly sovereign or state-linked - from the region so far this year, timed to coincide with a tightening of spreads among emerging market spreads, until the crisis in Greece brought things to a head.

"The region's credit spreads got hit by Greece, in line with wider emerging market credit, and there were concerns that spreads had tightened too much so a correction was needed," said the head of debt capital markets at a major international bank.

"The market will continue to be headline driven, but we also know that the money is out there, and issuers wanting to come in this quarter will push ahead but will be sensitive about when they announce roadshows."

Gulf firms have found it difficult to tap the debt market ever since state-owned conglomerate Dubai World announced in November that it needed to delay repayment on $26 billion in debt.

In March, Bahrain successfully raised $1.25 billion from a sovereign issue, having initially aimed for $1 billion, and bonds from high-rated lenders National Bank of Abu Dhabi and Banque Saudi Fransi were heavily oversubscribed.

Even a Dubai entity, utility DEWA, raised $1 billion in April, with an order book that was 11 times oversubscribed. Offering a coupon of 8.5 percent helped.
 
DUBAI WORLD WEIGHS

Hopes for an agreement on a debt plan presented to Dubai World creditors in March has opened the door again for issuers, with state-linked entities, and banks in the UAE, Bahrain and Qatar planning potential bond sales in the near future.

"The resolution of key issues in this region should help to remove some uncertainty and restore a degree of confidence among the investor base for Gulf credit," said Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi (NBAD).

"And, hence this would help to facilitate a healthy flow of new issues in the primary market."

Bahrain's BKK is to hold investor meetings in Asia and Europe starting Thursday.

A deal between creditors and Dubai World could be finalized within two weeks, said Sheikh Ahmed bin Saeed Al Maktoum, chairman of Dubai's Supreme Fiscal committee in a television interview last weekend.

Dubai World subsidiary Nakheel is expected to meet its commitment on a $980 million Islamic bond on May 13.

Investor interest in the Gulf bond market is partly led by the promise of a high yield from credits whose risk perception does not correspond to their underlying strength.

While investor jitters will continue to weigh on the primary market, NBAD's Bhogaita said that the current nervousness could present opportunities in the secondary market.

"Those investors that are very familiar with credits in this region, and the underlying credit quality of these issuers, may see the recent spread widening in markets as an opportunity to seek out attractive entry points for selected Gulf credits."