GCC debt issuance hits record high of $32 bln in Q1

The pace of GCC debt issuance slowed in 2018, but rose sharply in Q1 2019 to a historical high of $32 billion, resulting in a 9 percent year-on-year (YoY) increase in outstanding debt to $478 billion, the National Bank of Kuwait (NBK) noted in its latest report.

“The debt issuance was dominated by Saudi and Qatari sovereigns and quasi-sovereigns which comprised over $29 billion. Also noteworthy is the debut issuance of $12 billion of Saudi Aramco bonds in April, oversubscribed by a very large margin reflecting strong investor appetite,” NBK added.  

The Saudi Aramco issuance is part of an additional $16 billion in regional issuance scheduled for 2Q19, it noted.

Also read: Saudi Aramco announces pricing of $12 bln bond issuance

However, NBK report added the slowdown in global growth, dovish signals on monetary policy, low inflation and trade war effects saw global benchmark yields continue to trend down in Q1 2019.

In the US, the 10-year treasury yield declined by 27 bps quarter-on-quarter (QoQ) to 2.41 percent at the end of Q1, close to its lowest in over a year. This reflects a lower growth outlook and growing anticipations that the US Federal Reserve would revert to cutting interest rates for the first time in over a decade later this year, NBK noted in the report.

Yields in the GCC tracked lower, helped by rising oil prices which have benefitted fiscal consolidation efforts.

“GCC yields tracked their global counterparts lower in Q1 2019 albeit with even steeper declines. The falls were led by Bahrain and Oman, which dropped by 95 and 90 bps QoQ respectively despite continued pressure on fiscal positions,” NBK report added.

There was however a surge in regional debt issuance dominated by sovereigns in Saudi Arabia and Qatar, taking advantage of low borrowing costs, good credit ratings and strong appetite for regional paper among international investors.

“We expect regional yields to remain low this year given low policy rates and modest inflation, while regional issuance should increase after a modest 2018,” the report maintained.

NBK said international demand for GCC sovereigns is expected to receive a large boost this year due to the imminent inclusion of five (except Oman) GCC sovereigns in the JP Morgan Emerging markets Bond Index (EMBI).

It said the issuance of GCC sovereign bonds is expected to be solid in 2019 overall, despite rising oil prices and the boost to public revenues.

This is due to largely expansionary budgets and refinancing needs arising from maturing debt.

Moreover, the cost of borrowing remains relatively low thanks to good credit ratings and slow US policy rate hikes, foreign investor interest is on the rise, and market access continues to improve.