By: Mahmoud Gamal
Dubai – Mubasher: Sovereign ratings for the UAE have been stable lately, while oil prices have acted as catalysts, offering sovereign flexibility on the funding side, Philipp Good, CEO and head of portfolio management at Fisch Asset Management (FAM), told Mubasher in an exclusive interview.
Independent Credit Review (I-CV), a subsidiary of FAM, recently affirmed its positive outlook for the emirate of Dubai, giving it a ‘BBB+’ rating, while the emirate of Abu Dhabi received an ‘AA’ rating from three global rating agencies with a ‘stable outlook’.
The FAM unit gave Abu Dhabi an ‘AA-‘ rating.
Below is Mubasher’s exclusive interview with FAM’s CEO and head of portfolio management Philipp Good.
How do UAE debt markets currently fare in comparison to their global peers?
Philipp Good: The UAE debt market is performing well and is outperforming lots of other markets, with -0.5% year-to-date (YTD) versus. -0.9% YTD for the broad emerging market (EM) corporate market. GCC credits overall are also having a good year, and as an example we just had the two deals of Saudi Arabia and Qatar. There is a positive impact stemming from a more elevated and stable oil price when compared with recent years, combined with the reform agendas such as Dubai Plan 2021, UAE Vision 2020 and Saudi Vision 2030.
What are the geopolitical issues influencing sovereign ratings in the UAE?
Philipp Good: UAE sovereign ratings are currently experiencing stability, to the extent that Fisch Asset Management’s subsidiary I-CV even has a more positive view of Dubai, with an internal sovereign upgrade to a BBB+ rating. Abu Dhabi is rated AA by all big three rating agencies with a stable outlook. For the UAE as a whole, I-CV views the country as a solid AA- composite region. Geopolitically, there is not much going on that could put pressure on ratings in the near-term in our opinion.
What are the latest key trends in the UAE’s debt market?
Philipp Good: The UAE debt market has been undergoing a consolidation of issuers in recent months, which has had an impact on the industry. A whole host of movements have seen banks merging and government-owned entities merging, which has resulted in a concentration of credit risk in the UAE.
How does debt issuance in 2018 so far compare with 2017?
Philipp Good: Q1-18 is running 60% ahead of Q1-17 for the MENA region, whereas the other regions are roughly flat in their run rate. Emerging Market credit overall is in favour of investors, which also helps the local issuers. As recently seen with the two jumbo issues by Saudi Arabia and Qatar, investor demand for GCC credit is tremendous. This month’s triple tranche issued by the Qatari Sovereign had a book size of $52 billion for a $12 billion transaction. In the year-to-date, we have seen an aggregated $40 billion in new issuance in the GCC region, led by the recent sovereign issues of Oman, Bahrain, Saudi Arabia, and Qatar.
What factors are underpinning bond and sukuk performance in UAE?
Philipp Good: The performance of bonds and sukuk are underpinned by a wide range of macroeconomic and geopolitical factors. As these are looking conducive to the class, we would expect the sukuk market to experience a renaissance in the region. This performance will be primarily driven by the carry and hopefully not involved in any other credit event.
What do global investors currently think of the UAE debt market?
Philipp Good: The UAE debt market has been of increasing interest to global investors, who are keen to participate in new issuances. The current fundamentals of the market sway significantly in the region’s favour, with the more stable oil price over the past year underlining an investment drive towards the UAE.
What impact is the current oil price environment having on credit market volatility?
Philipp Good: In MENA and the GCC, the oil price creates a catalyst in several ways and provides the sovereign flexibility on the funding side. With the oil price currently more steady and higher than the recent depressions, volatility should be reduced considerably.
What is the outlook on UAE sovereign versus corporate issuance for the rest of 2018?
Philipp Good: The outlook for UAE sovereign versus corporate issuance has been progressing well so far and all the signs indicate that this year should prove to be very positive. Our forecast is that we should certainly match last year’s level by the time that we reach the end of this year.