GCC faces pressure over $94bn of outstanding debt, says HSBC

HSBC warns low liquidity could make it harder for region to repay sovereign and corporate debt
GCC faces pressure over $94bn of outstanding debt, says HSBC
By Sarah Townsend
Sun 28 Feb 2016 02:38 PM

The GCC is facing a $94 billion debt shortfall that it could struggle to meet amid low oil prices and regional economic insecurity, HSBC claims.

In what the bank says is the first time it has compiled all GCC medium-term debt estimates, HSBC research claims sovereign, financial and corporate borrowers in the region must repay or refinance $94 billion in bonds and syndicated loans over 2016 and 2017 as GCC debt matures in the years to 2020.

However, slowing growth, rising rates and rating downgrades in the low oil price era “only adds to the scale of the region’s funding challenge” and could make it harder to repay the debts, the report warns.

It says the UAE makes up the biggest chunk of repayment or refinancing obligations over the 2016-2017 period, followed by sovereign debt in Bahrain and Qatar.

By sector, most of the debt is owed by financial institutions at 22 percent, followed by sovereign wealth funds and energy borrowers with 19 percent each.

The report’s author Simon Williams, HSBC’s chief economist for the Middle East, said: “As we have noted at length in previous reports, the slump in oil prices looks set to leave the GCC oil producers with aggregate fiscal and current account shortfalls of $260 billion and $135 billion over 2016-17 respectively, the equivalent of 8.7 percent and 4.5 percent of GDP.

“The refinancing sum includes outstanding financial and corporate paper as well as debt issued by the sovereign, which is largely focused in UAE, Bahrain and Qatar.

“We remain confident that these funding gaps will be covered. However, expectations that they will be part-financed through the sale of sovereign US dollar debt will complicate efforts to refinance existing paper that matures over 2016-17.”

He noted that close to half of the maturities over 2016-17 centre on the banking sector, suggesting any increase in costs at refinancing could contribute to a broader monetary tightening in the region.

Said Williams: “With the Gulf acting as a single credit market…the refinancing challenge will likely be much more broadly felt, with its impact compounded by tightening regional liquidity, rising rates and recent downgrades by international rating agencies.”

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