DOHA: Growth in the GCC’s outstanding bonds was held back in the third quarter of 2014 (Q3, 2014) by weak non-financial sector issuance. GCC debt markets added a mere $832m over the quarter, to reach $266bn at the end of Q3 with growth slowing to 9 percent year-on-year.
The NBK’s economic update on the region’s “debt market” issued yesterday noted the Qatari public sector was uncommonly inactive in Q3 despite healthy demand for its paper by Qatari banks and foreign investors. The sovereign yields for Qatar remained steady at 2.43 percent for 5-6 year paper. The UAE, Saudi Arabia and Bahrain were behind the bulk of the issues, driven by their public sectors. Public sector issuance was mostly unchanged from the previous quarter at $6.5bn, but was characterised by issuances by less active sovereigns. Bahrain, which last issued debt over a year ago, capitalised on positive investor sentiment by issuing $1.25bn worth of debt, while Sharjah raised $750m in its first sukuk.
The wider participation of regional sovereigns could reflect the increased maturity of regional debt markets. In this regard, the UAE is considering legislation that could help streamline sovereign offerings by individual emirates.
The non-financial sector, which has recently been a primary driver of regional debt growth, witnessed its slowest quarter in five years. Issuance reached a low $250m, following strong activity the prior quarter. Regional turmoil triggered by the unrest in Syria and Iraq and a slowing global economy may have curtailed non-financials’ interest in tapping debt markets. Issuance by this sector likely to remain healthy going forward, as private sector growth picks up. The sector will also need to refinance nearly $5bn in maturing debt over the next year.
Financial sector issuance slowed somewhat from the previous quarter. With $2bn in new issues, the figure was almost half its two year average, and the weakest in a year. The third quarter saw the issuance of a pair of perpetual bonds by regional banks, reflecting the ongoing adoption of Basel III standards. Future issuance by this sector is expected to maintain a steady pace, encouraged by low rates and the prudential regulatory environment.
The average maturity of outstanding debt in the GCC increased to 6.2 years due to the longer maturity of issues. Banks sought to boost their capital base through perpetual issues. Non-financial debt maintained its average tenor of 9 years, while the average time to maturity of public debt was extended by six months to 5.5 years.
Sovereign yields seem to have stabilised towards the end of Q3, following a declining trend. Stronger investment sentiment, encouraged by a positive regional outlook, was partly responsible for this. As a result, sovereign spreads have tightened in recent months, benefitting as well from the steady increase in US treasury rates.
The Peninsula
