Markaz: Issuances by GCC Sovereign entities increased by 40% year-on-year amid growing budget defici

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Markaz Research

Markaz: Issuances by GCC Sovereign entities increased by 40% year-on-year amid growing budget deficits after the double blow of Covid-19 and slump in oil prices. 26 - Jul - 2020

Kuwait Financial Centre “Markaz”, in its recent research report titled GCC Bonds and Sukuk Market Survey H1-2020, highlighted the trends pertaining to Bonds and Sukuk primary issuances in the GCC region during the first half of 2020. The report showed that although primary issuances of debt were subdued during the first quarter of 2020 due to the implications and uncertainty surrounding the outbreak of Covid-19, issuing activity has picked up since and is evident by the sharp increase by 40% year-on-year in primary issuances of GCC Sovereign entities, which amounted to USD 42.3 billion during the first half of 2020. The double blow of Covid-19 and the subsequent slump in oil prices has resulted in added strain on GCC economies in terms of growing budget deficits and the need to gap them, whilst also leading to an unprecedented low interest rate environment.

The total value of GCC Bonds and Sukuk primary issuances amounted to USD 70.7 billion during H1-2020, an increase of 9% from the USD 65.0 billion raised during H1-2019. Moreover, the total number of primary issuances during H1-2020 totaled 174 primary issuances, compared to 229 issuances during the same period in 2019.

GCC Bonds and Sukuk Market
The Bonds and Sukuk market within the GCC consists of Bonds and Sukuk issued by governments or corporations for financing purposes and are denominated in either local or foreign currencies. A total of USD 70.7 billion was raised by Sovereign and Corporate entities in the GCC during H1-2020, an increase of 9% year-on-year from USD 65.0 billion raised during H1-2019.

Geographical Allocation: UAE-based issuers led the GCC Bonds and Sukuk market during H1-2020, raising a total of USD 24.6 billion, or representing 35% of the total value raised in the GCC, through 95 primary issuances. Saudi Arabia followed with 28% and Qatar with 26% of the total value raised. Moreover, Kuwaiti entities raised a total of USD 2.8 billion during H1-2020, representing 4% of the total value raised during H1-2020.

Sovereign vs. Corporate: Sovereign issuances by GCC entities amounted to USD 42.3 billion during H1-2020, which is an increase of 40% year-on-year from USD 30.1 billion raised during H1-2019. Corporate issuances on the other hand amounted to a total value of USD 28.5 billion during H1-2020, a decrease of 18% year-on-year from USD 34.9 billion raised during H1-2019.

Conventional vs. Sukuk: Conventional issuances increased during H1-2020 by 16% year-on-year compared to H1-2020, where a total of USD 55.5 billion was raised in the first half of 2020, representing 79% of the total value of primary issuances in the GCC. On the other hand, Sukuk issuances declined by 10% year-on-year to reach USD 15.2 billion during H1-2020 and representing 21% of the total value of issuances, compared with USD 17.0 billion raised during H1-2019.

Sector Allocation: The Government sector within the GCC accounted for the largest amount of primary debt issuances by value, raising a total of USD 42.3 billion, or 60% of the total value of issuances in the GCC during H1-2020, through 26. The Financial sector was second in its contribution to the total value of GCC primary issuances, raising a total value of USD 26.4 billion and representing 37% of the total market.

Maturity Profile: Issuances with tenors of 5-10 years slightly dominated the GCC debt capital markets by total value, raising a total of USD 21.3 billion, or 30% of the total value of issuances, through 31 issuances. Issuances with tenors of 10-30 came in second with a total value raised of USD 21.3 billion through 23 issuances.

Issue Size Profile: The size of GCC Bonds and Sukuk issuances ranged from USD 5 million to USD 5 billion. Issuances with principle amounts greater than or equal to USD 1 billion raised the largest amount totaling USD 51.5 billion, representing 73% of the total primary issuances.

Currency Profile: US Dollar-denominated issuances led the GCC Bonds and Sukuk market in H1-2020, raising a total of USD 59.0 billion or 83% of the total value of issuances during H1-2020, through 109 issuances. The second largest issue currency was the Saudi Riyal (SAR), where issuances in SAR raised a total of USD 5.5 billion or 8% of the total value of issuances in the GCC, through 5 issuances.

Rating: In terms of value, a total of 80% of GCC Conventional and Sukuk bonds were rated as Investment Grade during H1-2020 by either one of the following rating agencies: Standard & Poor’s, Moody’s, Fitch and/or Capital Intelligence.

Listing: During H1-2020, 113 issuances of a total of 174 issuances of Bonds and Sukuk were listed, which is 65% of the total number of issuances with a total value of USD 67.6 billion. London Stock Exchange is the listing exchange with the greatest traded value of GCC primary issuances during H1-2020 totaling USD 32.7 billion through 50 issuances.

Bonds and Sukuk Total Amount Outstanding in the GCC: As of 30 June 2020, the total amount outstanding of Corporate and Sovereign Bonds and Sukuk issued by GCC entities was USD 643.3 billion. Government issuances made up 58% of the total amount. Financial sector led the Corporates with 23% of the total amount.

Of the amount outstanding as of 30 June 2020, USD 233.9 billion, or 36%, were issued by Saudi Arabian entities. Bonds and Sukuk by Kuwaiti entities accounted for only 5% of the total amount of outstanding debt in the GCC.

GCC Central Banks Local Issuances: GCC Central Banks Local Issuances are comprised of short-term issuances by GCC Central Banks primarily to regulate levels of domestic liquidity and issued in local currency. During the first half of 2020, the Central Banks of Kuwait, Bahrain, Qatar and Oman raised a combined total of USD 23.8 billion (other Central Banks in the GCC do not provide regular and publicly available information on such issuances).

The Central Bank of Kuwait was the largest issuer, raising a total value of USD 14.1 billion during H1-2020, followed by the Central Bank of Bahrain with a total value of USD 6.6 billion.

Full Report
 
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