Why GCC bond issuances are likely to increase

Dubai - Total new supply of bonds for the whole year expected to finish at around Dh238.55B

GCC companies are likely to issue more bonds in the coming months to meet their funding needs ahead of the year-end, says a new research.
"We expect supply to pick up in the coming months as seasonality wanes and as issuers get pushed to complete their funding needs before the year-end. There is $4.5 billion [Dh16.5 billion] coming up for redemption between now and end of the year, part of which, particularly the maturities relating to FGB [now merged with National Bank of Abu Dhabi to become First Abu Dhabi Bank] and Taqa could get refinanced," said Anita Yadav, head of fixed income research at Emirates NBD Research.
In consideration of a bigger decline in GDP growth in the region that is expected early in the year, Yadav expects total new supply of bonds for the whole year to finish at around Dh238.55 billion.
Yadav said the new issue supply was expected to pick up in mid-August, but this got hijacked by the increasing volatility and risk aversion in financial markets on the back of geopolitical tension due to North Korea's missile testing. Issuers were wary of approaching investors at such time for the fear of having to pay heavily or worse, not be successful in completing the deal at all.
Saudi giant Aramco, which raised money earlier this year in riyal, still has plans to raise funds US bond/sukuk. Dubai-based property developer Union Properties could also potentially tap the market before the end of this year to raise up to $2 billion. Similarly, Taqa is likely to approach investors to refinance upcoming bond maturity. Saudi Electric is also in talks with banks for US dollar sukuk. Among sovereigns, the Oman government is believed to have mandated banks for an international bond while Bahrain is already holding roadshows for potential seven-, 12- and 30-year offerings.
After record new GCC bond issuances in the first half of 2017, the primary market seems to have ground to a halt in the third quarter. In the first half, GCC countries issued an unprecedented amount of bonds to cover budget deficits due to low oil prices. Large deals such as the $9 billion sukuk from Saudi Arabia, $8 billion bond from Kuwait and $5 billion debt raising by the Oman government lead total issuance to reach a record $43 billion in the first half this year compared with $36 billion in the year before.
GCC sovereigns, according to Yadav, are keen to develop domestic bond markets to reduce companies' near-complete dependence on bank loans particularly now that governments may not be in a position to fund any cash-strapped government-related entities or large corporate. "Consequently, issuance in local currency markets has more than doubled this year, somewhat reducing the need to rely on external funding via US dollar bonds."
- waheedabbas@khaleejtimes.com