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Standard Chartered Bank's Gulf Debt Outlook

24 March 2011
The GCC has around $40bn of debt coming due each year over the next five years, says Standard Chartered Bank . Plus a chart that neatly shows SCB 's forecasts for expected returns on each country's bonds.
The GCC has around $40bn of debt coming due each year over the next five years, according to Standard Chartered Bank , with Qatar, Abu Dhabi and Dubai accounting for about 60% of that debt.
"Dubai clearly faces the biggest challenge, with a heavily front-loaded debt redemption schedule - close to 70% of its non-bank debt matures in the next five years," notes Standard Chartered in its Middle East credit report.
"Material redemptions loom in 2011 and 2012 in the loan and bond markets, respectively. 2011 maturities include a government guaranteed $4-billion loan due from Investment Corporation of Dubai (ICD). 2012 will be a major test for Dubai Inc.'s bond market, with repayments due from three large quasi sovereign entities: Dubai Holding COG (February 2012, $500-million), DIFC Investments (June 2012, $1.25-billion) and JAFZ (November 2012, $2.04-billion)," says Standard Chartered .
Together Gulf countries have external debt close to 45% of GDP, according to the bank.
Gulf countries have raised an average of $85-billion each year since 2007 with Saudi Arabia, Qatar and the UAE's two largest emirates leading the way. However, since the Dubai World debt debacle, the emirate has eased up on debt loading.
And Dubai's return to the market depends much on high it deals with its current debt burden. "Dubai's debt woes have been the subject of much market discussion. However, it is important to highlight that most of these maturities are in loans. Admittedly, in a distress situation, dealing with bank debt is considerably easier than dealing with bonds, which are much more widely held."
"...Rather than face the wrath of international investors (who now have sizeable positions in some of the 2012 maturities) and risk closing its capital markets, we expect Dubai to eventually muddle through and service its 2012 obligations. However, we anticipate that external assistance will be required, particularly to deal with the larger maturities."
Standard Chartered thinks Qatari issuers have the strongest credit profiles in the region. "We view Qatar's issuance programme as well co-ordinated, with stronger credits coming to the bond market independently and the funding needs of weaker companies being met via direct issuance by the sovereign or by explicit government guarantees."
Meanwhile, Abu Dhabi issuers are 'fairly weak' on a standalone basis especially as many of the businesses are not viable without government support.
"We expect issuance from Abu Dhabi to become more co-ordinated as the newly formed Debt Management Office (DMO) becomes more active. However, it remains to be seen whether issuance will become more centralised at the sovereign level, or whether it will continue to be undertaken largely by government-owned entities."
Dubai creditors are a different story altogether:
"While the Dubai government's willingness to help service the debt of its quasi-sovereigns is not in question, the key issue is its ability to do so. As the events with Dubai World have demonstrated, the government's financial resources are clearly constrained, particularly in light of the onerous debt redemption schedule highlighted above. Accordingly, we expect continuing reliance on external sources."

However, Dubai issuers are coming back to the market, issuing nearly $5-billion of debt in 2010. Saudi and Bahraini issuers are also coming to the fore, with Manama's sovereign fund the largest in the Gulf last year. And while Bahrain was looking to return to the market this year, it is current in the middle of one of its worst political crisis and may push forward its plans.

The regional unrest has widened spreads, but Standard Chartered expects them to tighten once the current wave of unrest ends.

"We believe that the highly rated Abu Dhabi sovereigns, quasi-sovereigns and financials will tighten between 15bps and 25bps over the next 12 months....In Dubai, we expect the sovereign and quasi-sovereigns to tighten in 50-75bps."

Standard Chartered expects Qatar credits to tighten by 25-30bps over the next 12 months. "Expected supply in 2011 is high for both Abu Dhabi and Qatar, which could also weigh on spread performance. We expect a similar spread performance for Bahraini and Kuwaiti credits over the next 12 months."

Here is look at GCC's Credit In Charts:


Source: Standard Chartered Bank


Source: Standard Chartered Bank


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