Gulf governments will rely less on bond markets this year
Low-cost airlines a 'game changer' for Abu Dhabi tourism
Governments in the Gulf region will continue to tap debt capital markets this year, but their external financing needs are likely to be lower, according to the regional head of research and strategy at Japanese bank MUFG.
Sovereign issuance by Gulf governments is expected to reach around $31.9bn (Dh117.1bn) in funding to bridge budget deficits as they look to take advantage of a pause in interest rate hikes and the low cost of debt globally, said Ehsan Khoman, head of Middle East and North Africa research and strategy at MUFG. However, this is likely to be significantly lower than the amount issued last year.
Although MUFG did not give a comparative figure, a paper published by Kuwait Asset Management Company this month stated sovereign bond issuance from GCC countries increased 29 per cent last year, to $48.8bn.
A further $29.8bn was also issued in sukuk, up 12 per cent on 2018.
Cumulative gross financing needs of the Gulf states will narrow in 2020 on the back of stability in oil prices at relatively higher levels and more prudent expenditure policies of regional governments, Mr Khoman said.
At $52bn, Saudi Arabia tops the lists in the six-member economic bloc of GCC – home to about a third of the world’s proven oil reserves – in terms of gross financing needs. The kingdom, which is also the biggest Arab economy, will meet its funding requirements through a combination of proceeds from the privatisation of state-owned entities, domestic issuance and drawdowns of sovereign wealth funds and domestic bank deposits, Mr Khoman said.
The kingdom sold its first Eurobond of 2020 on Tuesday and raised $5bn, for which it received $23bn worth of orders, finance minister Mohammed Al Jadaan told Bloomberg TV on Wednesday during an interview on the sidelines of the World Economic Forum. It will tap international markets for about $9bn in total, he said.
"This will either be through issuances as we did yesterday or through alternative government financing," Mr Al Jadaan said.
“We have seen Saudi Arabia come to the market. They have been very transparent with their numbers …. markets like that a lot,” Mr
Khoman said. “Typically, Saudi Arabia sets the tone for the debt markets, they came and now the rest of the sovereigns will follow through with their borrowing programmes.”
The UAE, the secondbiggest Arab economy, which raised $10bn through a multitranche international bond deal in October 2019, has gross financing needs of $11.6bn in 2020. Oman and Bahrain have requirements of $6.7bn and $3.2bn, respectively, Mr Khoman noted.
“The wild card is Kuwait. The reason is that if Kuwait wants to issue debt, they have to pass the debt law. [Although] Kuwait really doesn’t need to raise anything …. they have surplus,” he said.
However, Kuwait, along with other regional issuers, he said, will continue to tap global bond investors as it assists the development of local capital markets, and debt issuance helps create “dots on their yield curves”, he said.
Most sovereigns in the region remain well-positioned with ample buffers to withstand lower oil prices over time. Despite a fall in hydrocarbon income, non-oil economies in the GCC have shown signs of strength in 2019 which bodes well for prospects in 2020, he noted.
The introduction of two new budget airlines will be "a game changer" for tourism facilities on Yas Island, the chief executive of master developer Miral said.
Announcements by Etihad and Air Arabia for the formation of Air Arabia Abu Dhabi in October and by Europe's Wizz Air to set up an Abu Dhabi airline in December will encourage tourists from a broader range of cities to visit the emirate and the theme parks and other tourism attractions at Yas Island, Mohamed Al Zaabi said.
"I think Air Arabia with their experience to access second- and third- tier cities in source markets like India, KSA, Russia and having Wizz Air with access to second- tier cities in Europe, that will just improve our position as an attractive destination on Yas Island particularly and generally Abu Dhabi," he said.
Abu Dhabi Development Holding's investment of €100 million in Germany's FTI Group Europe's third-biggest travel agency in December will also "help us to have more tourists coming to Yas and Abu Dhabi", Mr Al Zaabi said.