GCC governments issued $47.5 billion in bonds in up to November in 2020, with $35.4 billion during the first half (H1) of the year, a report said.
Sukuks issued by the governments stood at $28.7 billion and was almost equally split during the first half the second half of the year. Last year, bond issuances by governments in the region aggregated to $48.8 billion while sukuks issued were at $34.3 billion, said Kamco Invest in its “GCC Fixed Income Market Update”.
On the other hand, corporate issuances have also been active with $46.2 billion in bond issuances this year until November-2020, whereas sukuk issuances stood at $19.9 billion. This compares to last year’s $45.3 billion bonds and 14.8 billion in sukuks.
The bond issuances were aimed at both business expansion via new issuances as well refinancing needs. Data from Bloomberg showed that GCC government and corporate fixed income instrument maturities stood at $38.7 billion since May-2020 that were largely refinanced.
Total issuances this year until November-2020 stood at around $142 billion, almost in line with last year’s levels and full year issuances in 2020 is expected to marginally exceed last year levels.
GCC bond and sukuk issuances witnessed y-o-y gains for the second consecutive year in 2020 and trends for the coming year shows flat to slight decline in issuances in 2021. We believe that the year 2020 was an exceptional year with extreme events like the steep fall in economic growth rates across the globe and in the GCC as well as the historic decline in oil prices that particularly affected the oil exporting economies in the GCC.
Budget spending needs by the government is expected to drive sovereign issuances next year. However, with a significantly smaller expected deficits of around $84.3 billion in 2021 as against $127 billion in 2020, according to data from IMF, we expect government issuances to decline y-o-y in 2020. A number of GCC governments have announced a cut in spending next year and to focus on priority projects.
Meanwhile, issuances from Kuwait could be a game changer for the region in 2021 if the government passes the debt law. Kuwait completely stayed away from the bond market in 2020 as the parliament failed to renew the debt law.
On the other hand, corporate issuances are expected to fully or partly offset the decline in issuances by governments as better economic environment is expected to result in higher spending by the private sector. Moreover, borrowers are also keen on raising funds due to the low cost of borrowing globally. In addition, with yield on sovereign bonds reaching an all time low, governments may be motivated to issue new debt and lock in the low cost of debt.
Meanwhile, with four out of the six GCC countries having comfortable investment grade ratings and the assumed support from the group to Oman and Bahrain, this should support and enable raising funds in the region as well as internationally. Moreover, the sizable sovereign wealth funds for a majority of the sovereigns in the region support the overall credit ratings profile.
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