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GCC issuers get benefit from record low cost
Abdul Basit / 9 April 2013
Corporate and infrastructure issuers in the Gulf countries are benefitting from sustained positive macroeconomic fundamentals and strong appetite from regional and international investors for high credit quality paper, according to a latest report by Standard & Poor’s.
The issuers also took the advantage of historically low borrowing cost during the first quarter of 2013, the report added. Marking the first sovereign Islamic bond sale in the Gulf Cooperation Council (GCC) this year, Dubai launched a $1.25 billion two-part conventional and Islamic bond sale in January.
All Gulf sovereigns have stable outlooks and the average GCC sovereign rating remains firmly in the ‘A’ category, S&P’s said.
A strong last quarter of 2012 and somewhat weaker first quarter of 2013 have resulted in marginally higher issuance volume of $31.2 billion over the past six months compared with $31 billion over the same period one year ago, according to data from Zawya.
Similarly, sukuk issuance increased slightly to $11.2 billion from $11 billion, accounting for just over a third of total issuance volumes.
Positive factors have allowed corporate and infrastructure entities, including Qatar Telecom, Dubai Electricity and Water Authority, and Saudi Electric Company, to tap the market through US dollar bond and sukuk to meet their funding needs.
“The rates achieved for these entities have been significantly lower than just one or two years ago,” said S&P’s credit analyst Karim Nassif.
Yields have continued to contract over the past six months, hitting record lows at the beginning of the first quarter of 2013. This was the culmination of an unprecedented drop in yields of over 30 per cent since the beginning of 2012. The longstanding premium for GCC issuers over peers in developed markets has truly vanished.
This is especially true for Dubai-based issuers, where the economy is performing well, driven by strong trade, tourism, and logistics sectors, recovery in the real estate market, and further progress on debt restructurings. “We believe all of these factors should make negotiations on the refinancing of Dubai GREs’ debt falling due in 2013 and 2014 much easier,” Nassif said.
“GCC hydrocarbon exporters’ macroeconomic fundamentals remain strong, driven by a sustained Brent oil price above $100 per barrel, leading us to expect GDP growth of four per cent and above in 2013 for most of the GCC nations,” S&P’s said.
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