GCC bond sale pick-up shows investors’ trust in economy

from the Khaleej Times..

May 29, 2013

by Isaac John

Led by the UAE, the issuance of debt securities in the GCC recorded a strong pick-up in the first quarter to hit $16.7 billion, underscoring a sustained recovery.

Reflecting increased investor confidence and search for yield, most new bond and sukuk issuances have longer maturities, the National Bank of Kuwait, or NBK, said in a report.

Along with the UAE, Qatar and Saudi Arabia continued to account for the majority of the region’s issued debt, with total outstanding securities for these three countries amounting to $99 billion, $69 billion, and $38 billion, respectively, the NBK report said.

Total outstanding GCC fixed-income instruments reached $231.8 billion at the end of the first quarter, up $12.8 billion from December 2012, the NBK said.

While GCC public-sector issuance continued to decline, new debt issues, especially by corporates, tended to have longer tenors, lengthening the average maturity of outstanding bonds.

Issuance in the first quarter of 2013 rose two per cent against a year ago to $16.7 billion worth of debt securities. The UAE led the way with $7.8 billion, followed by Saudi Arabia ($5.4 billion), and Qatar ($1.3 billion), the bank said.

The first quarter upswing was driven primarily by corporates, with the majority of the push coming from Saudi Arabia. Issuances by the kingdom’s corporates amounted to $5.4 billion, or 32 per cent of all new GCC debt issued during the period. Saudi Electric Company and Sadara dominated Saudi private sector issuance, while Emirates airline and Ooredoo drove debt growth in the UAE and Qatar, respectively.

In 2013, according to Standard Chartered, total US dollar-denominated bond issues from GCC countries are expected to hit $37 billion, slightly higher than the $34 billion of total dollar issuance in 2012. Much of the issues from the GCC has been dominated by Dubai, including a two-part $1.25 billion issue by the government, a $1 billion issue from the Dubai Electricity and Water Authority and $1.75 billion from Emirates airline.

The NBK report said public sector issuance has been declining over the last year. “During the first quarter, it registered its lowest level since third quarter 2011, with issuance during the quarter at $4 billion. Public sector issuance, which includes sovereign bonds in addition to government related entities, accounted for less than a quarter of all issuance during the first quarter, down from an average above 60 per cent over the last two years.” The bank said the public sector’s share first fell below 50 per cent in the last quarter of 2012 for the first time since early 2009 and has remained there in the first quarter of this year, reflecting a recovering private sector.

The report pointed out that GCC bonds and sukuks are increasingly being issued with longer maturities reflecting increased investor confidence and the search for yield. The average maturity of outstanding GCC debt securities increased by 0.2 years between last quarter of 2012 and first quarter of 2013 to reach 5.9 years. This was driven by the corporate sector that saw this year’s issuance at longer maturities than usual. Public sector issuance, which includes sovereign bonds in addition to government-related entities, accounted for less than a quarter of all issuance, down from an average above 60 per cent over the last two years.

Abdul Rahman Al Baker, executive director of Financial Institutions Supervision at the Central Bank of Bahrain, said 2013 saw a revival in the global sukuk markets due mainly to gradual recovery of global economy and investors’ sentiment, which drives the demand for sukuk. “It is clear that sukuk issuance in the first quarter of 2013 exceeded all expectations reaching a record of $35 billion globally, of which sovereign issuance accounted for 62 per cent while corporates took 23 and quasi-sovereign or government-related entities accounted for 15 per cent,” he said at a recent event in Bahrain.

Link to the article:

http://www.khaleejtimes.com/biz/inside.asp xfile=/data/uaebusiness/2013/May/uaebusiness_May508.xml&section=uaebusines

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