Another year of large issuances
The Gulf Cooperation Council (GCC) is expected to continue flooding international markets with bonds in 2017 according to ratings agency Moody’s. However, the amount will not be as high as seen in 2016.
Moody’s expects GCC countries to issue bonds worth about $32.5 billion this year, down 16.5% from a record setting $38.9 billion in 2016. The expected amount of issuance in 2017 will form 21% of the aggregate financing requirements for GCC countries (GULF) for the year.
According to the firm, “favorable market conditions and the limited depth of many of the region’s domestic financial systems mean that all GCC issuers, with the exception of Abu Dhabi, will head to the international market again in 2017.”
The record issuance in 2016 by the GCC was led by Saudi Arabia (KSA) whose $17.5 billion offering was the biggest for an emerging market. This was followed by Qatar’s $9 billion issuance.
2017 has seen Kuwait issue bonds worth $8 billion in its international debut on March 14 via five and ten-year bonds. Meanwhile, Oman sold five, ten and 30-year papers earlier in March, worth a cumulative $5 billion.
GCC sovereigns will be keen to plug fiscal and budget gaps at a time when investor interest is strong, as Moody’s also noted.
High investor demand
Investors have shown a large appetite for bonds issued by GCC countries.
When Saudi Arabia intended to launch its first ever dollar-denominated bond issue in 2016, it had aimed to raise between $10 billion and $15 billion. However, an order book of $67 billion meant that it ended up raising $17.5 billion. Of this, $5.5 billion worth of five and ten year papers each were issued while $6.5 billion worth of 30-year bonds were sold.
Due to superlative demand, yields also fell. According to sources contacted by Bloomberg, the five year notes yielded 135 basis points more than similar maturity Treasuries; the ten year yielded 165 basis points more while the 30-year yielded 210 basis points more. These yield levels were tighter than expected.
The Middle East giant used the proceeds from the sale to plug a budget shortfall, which, at $97 billion in 2015, had stood at 15% of its economic output.
In the next article, let’s look at what might be in store for these issuances and possible risks which can alter the projected number.