Dubai: In the context of tightening liquidity and rising funding costs putting pressure on bank funding analysts expect a surge in debt capital market activity in the region during the next two years.
In 2016, GCC governments raised $38.9 billion (Dh142.7 billion) through international bond issues and despite the recovery in oil prices, they are expected to continue tapping into the bond markets in 2017. Bolstered by Saudi Arabia’s $9 billion international Islamic bond in April and Kuwait’s $8 billion debut international bond sale in March, Middle Eastern debt issuance reached $57.4 billion during the first half of 2017, 53 per cent more than the proceeds raised during the same period last year and by far the best annual start in the region since records began in 1980.
“On the positive side, most of the regional oil exporters have adequate credit quality enabling them to comfortably raise debt in the international market. This is particularly the case with the GCC countries with almost all of the economies continuing to boast investment grade ratings despite several downgrades by rating agencies over the past 18 months,” said Faisal Hasan, Head — Investment Research at Kamco.
Domestic debt markets
During the first six months of this year, Saudi Arabia was the most active nation in debt issuance in the region accounting for 21 per cent of activity by value, followed by Kuwait with 18 per cent. International Islamic debt issuance increased 50 per cent year-on-year to reach $31.4 billion so far during 2017.
Increasingly domestic debt markets are also becoming important for GCC countries to raise funds and manage liquidity. These offer central banks the flexibility of an additional instrument for managing liquidity by conducting open market operations in the context of the currency pegs.