GCC debt capital markets kicked off the year with their strongest start on record, raising more than $30 billion in January, led by Saudi Arabia and the UAE, before activity slowed during Ramadan and effectively stalled after the US-Israel war on Iran.

Nearly 2.5 months into the conflict affecting GCC nations, issuance volumes remain subdued. Zawya examines the trends shaping the market, speaking with Abdeslam Alaoui, managing director and head of CEEMEA capital markets at Deutsche Bank.

As the war drags on, investment bankers in the region are positioning issuers including sovereigns to tap the market when the next window opens, Alaoui said.

“It is difficult to predict geopolitical developments. As soon as we see a more stable environment and de-escalation of the war, issuers will be able to move swiftly,” he said.

NIPs compressed

High-quality issuers, including GREs and banks, have already accessed the market after early signs of stabilisation. New issue premiums (NIPs) could compress from levels seen in recent weeks. “But it will remain higher than what we had in January. Recent issuances resulted in a 5-10bps new issue premium,” Alaoui said.

Saudi Arabia’s PIF raised $7 billion in a three-tranche bond sale last Thursday, with orderbooks exceeding $20 billion, reflecting robust investor demand and allowing the wealth fund to tighten pricing. 

 Also, Emirates NBD’s $750 million AT1 transaction at the end of April was a positive signal of investor uptake with the deal more than twice oversubscribed.

AT1s are expected to pay more premium compared to senior debt. AT1 and Tier 2 instruments generally come with a higher premium, as they are higher-risk, more volatile assets that tend to move more sharply with market sentiment.

Sovereigns ready to issue as demand holds

Sovereign issuers are well positioned to tap the market as soon as there is a window. It is just about the how much they are keen to pay in terms of new issue premium.

“The issuers are currently favouring intermediate tenors, given the flat 5-year to 10-year curve and lack of appetite to lock in elevated longer dated rates. There is still strong demand from the local and international investors supporting GCC primary activity despite the ongoing geopolitical conflict,” Alaoui said.

“Longer-term we might see defence spending likely to boost central government borrowing requirements, leading to higher volumes issued by Sovereigns and GREs,” he added.

High-beta sectors pause supply

Lower or muted supply is expected from high-beta sectors such as real estate in the coming quarters. Developers in the GCC rely heavily on debt markets; for instance, UAE developers issued roughly $3 billion in bonds and sukuk in January and February.

As the war began, dollar bonds and sukuk issued by UAE developers such as Omniyat, Binghatti, Arada and Sobha came under pressure, though declines were partly mitigated after they disclosed strong financial positions and ample liquidity.

“Top real estate developers in the GCC maintain robust cash and liquidity buffers. However, the sector is among the first to face investor concerns during periods of volatility. In light of heavy issuance in recent months, a near-term pause in supply from real estate issuers would not be surprising.”

Some of the recent issuances in the sector are trading 269bps and 297bps wider vs end of February

DCM outlook

Issuance activity in the GCC could revert broadly to the levels seen in 2025 and early 2026, following a particularly strong start to the year, according to Alaoui. 

While execution windows can close during periods of volatility, such as earlier in March, once conditions stabilise and the market reopens, issuers could move swiftly to take advantage.  “At the same time, investors who have remained on the sidelines are typically quick to re-engage, looking to deploy available cash. The current rate environment remains supportive, with benchmark yields at attractive levels and coupons offering compelling value, particularly for high-quality GCC credits,” he said.

“While investor-side liquidity remains ample, issuers may still need to offer higher NIP to attract broader international participation compared with local investors,” he added.

Moreover, Emerging market credit continues to outperform US peers year-to-date, with both investment-grade and high-yield spreads tightening, reinforcing the strength of investor demand for the asset class.

Alaoui expects issuers in the GCC to re-tap the market with USD issuance first due to more favourable pricing levels, deepest liquidity pool and swifter execution. Alternative currencies will likely follow at a later stage.

(Reporting by Seban Scaria; editing by Daniel Luiz)

(seban.scaria@lseg.com)