Gulf bond market gets boost from regulations

Gulf bond market gets boost from regulations

$43b sukuk issued globally in 2013, out of which 50% came from GCC



By Dr R. Seetharaman (Doha Dateline)

Published: Sun 30 Mar 2014, 11:13 AM

Last updated: Fri 3 Apr 2015, 7:08 PM

The global bond markets witnessed bond issues more than $1.09 billion so far in 2014, which is almost close to the bond issues made in the first quarter of 2013 which amounts to $1.11 billion. The bond issues in global bond markets exceeded more than $3.65 trillion in 2013.

The US 10-year yields and 30-year yields was above 2.74 per cent and 3.6 per cent respectively. The difference between yields on 10- and 30-year US Treasuries narrowed after Federal Reserve indicated that interest rates may rise faster than anticipated. At the beginning of the year US 10-year yields was at three per cent on hopes of speedy US economic recovery and withdrawal of tapering.

However, since the Fed started tapering in December 2013, bond yields have not risen by much, reflecting concerns about weak economic data out of China, geopolitical tensions in Ukraine and deflation risk in Europe. The US 10-year yield can once again reach three per cent on hopes of recovery in US.

In 2014, Global Islamic sukuk is worth more than $9.6 billion, however, in the first quarter of 2013 it was worth more than $13 billion.

The major bond issuers in 2014 include Islamic Development Bank worth $1.5 billion and Tenaq Nasional worth $1.09 billion. The GCC (Gulf Cooperation Council) contributed to more than 20 per cent of global sukuk in the first quarter of 2014. In 2013 global sukuk issues were worth $43 billion out of which close to 50 per cent came from the GCC.

The GCC bond issues is worth more than $4.6 billion in 2014, while in Q1 of 2013 the bond issues were worth $14.5 billion. The GCC conventional bond issues were worth $1.8 billion in 2014, it were worth $6 billion in the first quarter of 2013.

The major conventional bond issuers in 2014 include Abu Dhabi worth $765 million and Kuwait Project Company worth $500 million. The GCC Islamic bond issues were worth $2.8 billion in 2014, while it were $8.5 billion in the first quarter of 2013.

The major Islamic bond issuers in 2014 include National Commercial Bank worth $1.3 billion and Saudi Sovereign bond issue worth $1.1 billion. The bond issues in GCC in 2013 were worth more than $45 billion.

The GCC sovereign yields surged on account of regional geopolitical tensions, however, subsided as tensions came down. By end of third week of March 2014, five-year Qatar CDS was at 63 basis points, five-year Dubai CDS was at 188 basis points, five-year Abu Dhabi CDS was at 53 basis points, five-year Saudi Arabia CDS was at 56 basis points and five-year Bahrain CDS was at 185 basis points.

Recently Securities and Commodities Authority of the UAE has issued new rules for issuance and trading of covered bonds. The covered bonds, which are backed by cash flows from mortgages or public sector loans, are considered relatively safe because investors have a preferential claim on the assets in the event of a default. This will provide commercial banks a new source of funding.

Recently the Capital Market Authority of Oman issued draft sukuk regulations to promote the Islamic debt market. In addition to this the Oman government also plans to float $520 million worth of sovereign sukuk in the domestic market. Qatar Central Bank also issues debt on quarterly basis since March 2013 to manage liquidity in the banking system. The various regulatory measures brought in recent times is going to give a boost to GCC bond market.

The witer is the group chief executive officer at Doha Bank. Views expressed by him are his own and do not reflect the newspaper’s policy.


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