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GCC bond, sukuk issuance surges $32bn in Q1– NBK Research

GCC bond, sukuk issuance surges $32bn in Q1– NBK Research
NBK Research also predicts regional issuance to remain solid in 2019
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Mubasher: The issuance of bonds and sukuk in the Gulf region has soared by $32 billion during the first quarter of 2019.

The surge in Q1 bond and sukuk issuance in the GCC has raised outstanding debt in the region to $478 billion. Meanwhile, yields in the Gulf area trended lower, backed by increasing oil prices which have benefitted fiscal consolidation efforts across the region, according to a recent research published by the National Bank of Kuwait (NBK).

Regional debt issuance registered a sharp increase, led by the sovereigns of Saudi Arabia and Qatar, driven by low borrowing costs, good credit ratings, and strong appetite for regional bonds among international investors.

NBK Research expects regional yields to remain low, while issuance is forecast to increase on 2018’s levels.

A decrease in Bahrain sovereign yields was registered by the provision of a $10 billion support package by neighboring countries in 2018 of which it recently received, in tandem with a series of fiscal reforms.

Furthermore, NBK research showed that Oman yields registered a sharp decrease, dragged by the promise of fiscal reforms including the introduction of value-added tax (VAT).

NBK Group Chief Economist, Saade Chami, said: “All GCC sovereigns now have stable outlooks and most have investment grade ratings. International demand for GCC sovereigns is expected to receive a large boost in 2019 as a result of inclusion of five GCC sovereigns (excluding Oman) in the JP Morgan Emerging Markets Bond Index (EMBI). The region could receive as much as $30 billion in fund inflows, with most being allocated to larger debt markets such as Saudi Arabia.”

In 2018, the UAE set in place a new debt law and a debt management office, while in Saudi Arabia the local stock exchange, Tadawul, launched bond and sukuk trading.

NBK Research also predicts regional issuance to remain solid in 2019, although debt issuance slowed in 2018, it has risen sharply in Q1-19 to a historical leap of $32 billion, and is likely to continue to remain solid throughout 2019.

Chami concluded: “In the first quarter we saw significant developments including Aramco’s $12 billion debut bond. Issuance of bonds by GCC sovereigns and corporates is expected to grow in 2019, as a result of largely expansionary budgets and refinancing needs arising from maturing debt.”