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Fri 8 Mar 2013 10:14 AM

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GCC banks seen active in debt markets in 2013

Standard & Poor's report says high issuance levels set to be maintained this year

GCC banks seen active in debt markets in 2013

Banks in the GCC are expected to maintain issuance levels this year as they aim to capitalise on investors' global search for higher yields, according to Standard & Poor's.

The rating agency said in a new report that GCC banks drove issuance volumes "significantly higher" in 2012 compared to the previous year.

And analysts added that they expect the volumes to remain high throughout 2013.

"We noted a sharp rebound in Gulf banks' activity in debt capital markets in 2012 as they took the opportunity to issue long-term debt at healthy prices under the favorable market conditions," said Standard & Poor's credit analyst Timucin Engin.

"Given the interest from institutional investors, the banks' rapid growth, and the supportive environment for issuing long-term debt instruments at low cost, we think Gulf banks will have another busy issuance year."

S&P said it expects most of the impetus to come from banks in the UAE, the largest issuers in 2012, and Qatar, where issuance has been steadily increasing.

The rating agency added that as Gulf banks look to diversify their funding base, sukuk is set to become more important in the GCC's fixed-income market, representing almost half of Gulf banks' issuance in 2011 and 2012.

"Sukuk is becoming a key component of Gulf banks' funding bases," said Engin.

"About 50 percent of banks' debt issued in 2011 and 45 percent in 2012 was in the form of sukuk. Last year, banks issued $6.7bn of sukuk, representing year-over-year growth of 136 percent.

"More important, conventional banks are now increasingly participating in the sukuk market as a means of diversifying their funding bases with longer-term instruments. The demand for sharia-compliant products is rising, both regionally and internationally," he added.

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