(Changes made to the second and eighth paragraphs to correctly attribute the responses to Emirates NBD Asset Management, instead of Fisch Asset Management).
The amount of bonds and sukuk issued in the Gulf region hit a record high of over $70 billion last year, fuelled by sovereign governments, who raised 70 percent of the total, according to a new study.
The figure represented a $10 billion (16.7 percent) increase on the amount of debt raised on capital markets in the previous year, report co-authors Emirates NBD Asset Management confirmed to Zawya by email on Tuesday.
The GCC Fixed Income Market: Then and Now, a white paper published by FischAsset Management/Emirates NBD Asset Management on Monday, stated that 2017 represented the second year where sovereign governments had embarked on aggressive external debt issuance programmes as they seek to fill budget deficits caused by lower oil revenues.
However, it said there had been plenty of appetite among investors to purchase the debt instruments issued, with 75 percent sold to investors outside the Gulf Cooperation Council (GCC) area. The bulk of the debt was raised by conventional bonds, but $2.25 billion was raised via Shariah-compliant sukuk.
The report said that GCC issuers made up the lion's share of the hard currency market for bonds in the wider Central Eastern Europe, Middle East and African (CEEMA) market, which has traditionally been dominated by Russia and Turkey. Four out of five of the 'jumbo' ($5 billion-plus) bond issuances in this market last year came from Gulf sovereigns (two from Saudi Arabia, one from Abu Dhabi and one from Kuwait). It also argued that this trend was likely to continue throughout 2018.
In a press release accompanying the report, Philipp Good, the chief executive of Fisch Asset Management, said: “What is particularly promising is that the rise in issuance occurred despite a number of disruptive events – particularly for sovereigns. Qatar, Oman and Bahrain all had their ratings downgraded, while Dana Gas began a contentious sukuk restructuring process," Good said.
"Credit market volatility was further increased by a lack of sustained regional harmony, with the unforeseen embargo of Qatar followed by the heavily publicised anti-corruption measures in Saudi Arabia, both of which caused shockwaves,” Good continued. “But issuance has gathered pace regardless, and the 2018 pipeline looks robust.”
A separate note from analysts at National Bank of Kuwait, also published on Monday and citing Thomson Reuters data, stated that GCC governments raised $50 billion in international debt markets last year, which it said helped to push gross issuance of debt to more than $100 billion (Emirates NBD said that its lower figure did not include any debt issuance below $250 million, but NBK included this, and said it had included other securities that had been omitted from its source data).
NBK’s report said that debt issued by governments and related entities stood at $84 billion, while debt issued by regional corporates fell by $4 billion (or 20 percent) to $16 billion.
It added that with aggregate fiscal deficits due to be chalked up by GCC governments this year likely to reach $74 billion, it expected debt issuance to remain healthy in 2018.
"Oman has already tapped international markets for $6.5 billion and other sovereigns are expected to soon follow," the firm's note said.
Meanwhile, Bank of America Merrill Lynch issued its forecast for sovereign debt issuance for 2018 on Sunday. Globally, the bank forecast net sovereign debt issuance of $124 billion for 2018, and argued that more than half ($72 billion) of this will originate from Middle Eastern and African Governments. It predicted that $44 billion would come from just four GCC states, with Saudi Arabia ($20 billion) and Qatar ($10 billion) raising the most, followed by Oman and Kuwait.
(Writing by Michael Fahy; Editing by Shane McGinley)
© ZAWYA 2018