Remember that flood of bond sales analysts said companies would unleash after Gulf governments tapped the market? It’s probably happening in 2018, according to First Abu Dhabi Bank and Mitsubishi UFJ Financial Group.
There are at least two risks driving companies and banks to the market. The first is a debt wall of about $60 billion of syndicated loans and bonds due in 2018, according to data compiled by Bloomberg. The other is the threat of rising interest rates in the Gulf, where central banks typically follow monetary policy decisions in the US.
A recovery in oil prices may pare sales by Gulf governments, but “materially more” banks and companies will probably tap the market in 2018 because it’s the most “preferred and most cost effective way” of coping with the debt due, according to Andy Cairns, the head of global corporate finance at First Abu Dhabi Bank.
That, together with a rush to lock in relatively low interest rates and diversify sources of funding, will help spur offerings to between $70 billion and $90 billion, Cairns said, whose bank was the only regional lender last year to rank among the top five bond managers in the six-nation Gulf Cooperation Council.
Some analysts expected more companies and financial institutions across the GCC to sell bonds after governments set yield curves for the first time over the past two years. Even though corporate issuance rose in 2017, it was hampered by cuts in government spending as lower oil prices slowed economic growth and reduced the need for funding.
Meanwhile, sovereigns seeking to fund their budget deficits pushed offerings to a record $85 billion, accounting for more than half of total sales in 2017, up from 12 percent in 2015.
Saudi Arabia’s government led bond sales last year, raising $21.5 billion, followed by Abu Dhabi’s $10 billion offering and Kuwait’s $8 billion issue, according to data compiled by Bloomberg.
Financial institutions raised a record $24 billion from the sale of bonds last year, while companies issued a total of $10 billion, the most since 2014, according to data compiled by Bloomberg. The biggest corporate deal came from a unit of state-owned Abu Dhabi National Oil Co, which raised $3.04 billion.
“2018 will be more balanced with sovereigns along with financial institutions and corporates all issuing at similar levels,” said Elyas Algaseer, the Dubai-based co-head for the Middle East and North Africa at Mitsubishi UFJ, who sees similar levels of bond sales in the Gulf this year, provided the geopolitical situation doesn’t deteriorate.
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