Markaz: Issuances by GCC sovereign entities soar 25% amid growing budget deficits ensuing from Covid

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Markaz: Issuances by GCC sovereign entities soar 25% amid growing budget deficits ensuing from Covid-19 and lower oil prices 03 - Feb - 2021

Kuwait Financial Centre “Markaz”, in its recent research report titled “GCC Bonds and Sukuk Market Survey 2020,” highlighted the trends pertaining to Bonds and Sukuk primary issuances in the GCC region during the past year. The report showed that despite the double blow of the outbreak of Covid-19 and the subsequent decline in oil prices, primary debt issuances set a new record for the total value of issuances raised in one year.

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.  Primary issuances of Bonds and Sukuk amounted to USD 132.7 billion during 2020, marking a growth of 16% year-on-year from USD 114.2 billion raised in 2019. The implications of Covid-19 have resulted in added strain on regional economies in terms of growing budget deficits and tightening liquidity. Moreover, the total number of primary issuances during last year totaled 360, compared to 409 issuances during the same period in the previous year.

Geographical Allocation: UAE-based issuers led the GCC Bonds and Sukuk market during 2020, raising a total of USD 48.5 billion, or representing 37% of the total value raised in the GCC, through 195 primary issuances. Saudi Arabia followed with 32% and Qatar with 18% of the total value raised. Moreover, Kuwaiti entities raised a total of USD 4.6 billion, representing 3% of the total value raised during the year.

Sovereign vs. Corporate: Sovereign issuances by GCC entities amounted to USD 66.3 billion during 2020, up 25% year-on-year from USD 52.9 billion raised during 2019. Corporate issuances on the other hand amounted to a total value of USD 66.4 billion during the past year, an increase of 8% year-on-year from USD 61.3 billion raised during the previous year.

Conventional vs. Sukuk: Conventional issuances increased during 2020 by 10% year-on-year, where a total of USD 93.4 billion was raised in 2020, representing 70% of the total value of primary issuances in the GCC. On the other hand, Sukuk issuances increased by 35% year-on-year to reach USD 39.3 billion during 2020 and representing 30% of the total value of issuances, compared with USD 29.1 billion raised during 2019.

Sector Allocation: The Government sector accounted for the largest amount of primary debt issuances by value, raising a total of USD 66.3 billion, or 50% of the total value of issuances in the GCC during 2020. The Financial sector was second in its contribution to the total value of primary issuances in the region, raising a total value of USD 47.4 billion and representing 36% of the total market.

Maturity Profile: Issuances with tenors of 5-10 years dominated the GCC debt capital markets by total value, raising a total of USD 42.8 billion, or 32% of the total value of issuances, through 130 issuances. Issuances with tenors of 10-30 came in second with a total value raised of USD 36.2 billion through 66 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 89.9 billion, representing 68% of the total primary issuances.

Currency Profile: US dollar-denominated issuances led the GCC Bonds and Sukuk market in 2020, raising a total of USD 102.6 billion or 77% of the total value of issuances, through 203 issuances. The second largest issue currency was the Saudi Riyal (SAR), where issuances in SAR raised a total of USD 17.7 billion or 13% of the total value of issuances in the GCC, through 13 issuances.

Rating: In terms of value, a total of 70% of GCC Conventional and Sukuk bonds were rated as Investment Grade during 2020 by either one of the following rating agencies: Standard & Poor’s, Moody’s, Fitch and/or Capital Intelligence.

Listing: During 2020, 234 issuances of a total of 390 issuances of Bonds and Sukuk were listed, equivalent to USD 123.7 billion. London Stock Exchange is the listing exchange with the greatest traded value of GCC primary issuances during 2020 totaling USD 58.1 billion through 100 issuances.

Bonds and Sukuk Total Amount Outstanding in the GCC: As of 31 December 2020, the total amount outstanding of Corporate and Sovereign Bonds and Sukuk issued by GCC entities was USD 648.5 billion. Government issuances made up 57% of the total amount. The Financial sector led the Corporates with 23% of the total amount.

Of the amount outstanding as of 31 December 2020, USD 248.1 billion, or 38%, were issued by Saudi Arabian entities. Bonds and Sukuk by Kuwaiti entities accounted for only USD 25.1 billion, or 4% 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 2020, the Central Banks of Kuwait, Bahrain, Qatar and Oman raised a combined total of USD 48.1 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 28.4 billion during 2020, followed by the Central Bank of Bahrain with a total value of USD 13.7 billion.

Full Report

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