Arab states face $94 bil­lion debt crunch on oil slump: HSBC

The Pak Banker - - MARKETS/SPORTS -

Gulf Co­op­er­a­tion Coun­cil coun­tries may strug­gle to re­fi­nance $94 bil­lion of debt in the next two years as the re­gion faces slow­ing growth, ris­ing rates and rat­ing down­grades, ac­cord­ing to HSBC Hold­ings Plc.

Oil-rich GCC states have to re­fi­nance $52 bil­lion of bonds and $42 bil­lion of syn­di­cated loans, mostly in the United Arab Emi­rates and Qatar, HSBC said in an e-mailed re­port. The coun­tries also face a fis­cal and cur­rent ac­count deficit of $395 bil­lion over the pe­riod, it said. Ex­pec­ta­tions that th­ese fund­ing gaps "will be part fi­nanced through the sale of sov­er­eign US dol­lar debt will com­pli­cate ef­forts to re­fi­nance ex­ist­ing pa­per that ma­tures over 2016 and 2017," Si­mon Wil­liams, HSBC's chief econ­o­mist for the Middle East, said in the re­port. "With the Gulf act­ing as a sin­gle credit mar­ket, the re­fi­nanc­ing chal­lenge will likely be much more broadly felt" and "com­pounded by tight­en­ing re­gional liq­uid­ity, ris­ing rates and re­cent down­grades," he said.

GCC states, which col­lec­tively pro­duce about a quar­ter of the world's oil, are tak­ing un­prece­dented mea­sures to shore up their pub­lic fi­nances as crude prices strug­gle to re­bound from the low­est lev­els in 12 years. The coun­tries, which in­clude Saudi Ara­bia and Oman, have also been hit by a se­ries of rat­ing cuts, while bil­lions of dol­lars have been drained from the re­gion's bank­ing sys­tem.

Gulf coun­tries have about $610 bil­lion out­stand­ing in FX-de­nom­i­nated bonds and syn­di­cated loans, HSBC said. This in­cludes fi­nan­cial and cor­po­rate debt, as well as sov­er­eign debt, mainly in the U.A.E., Bahrain and Qatar, it said.

HSBC is con­fi­dent that the fund­ing gaps will be cov­ered and ex­pects a "raft" of for­eign sov­er­eign bond is­suance to fund bud­get deficits. Any new is­suance will have to com­pete with up­com­ing re­fi­nanc­ing needs, the bank said. Al­most half of the ma­tu­ri­ties due in the next two years are in the bank­ing sec­tor, HSBC said, "sug­gest­ing any in­crease in costs at re­fi­nanc­ing could quickly feed through into a broader mon­e­tary tight­en­ing."

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