GCC tipped for record funding in bond markets
Regional banks facing liquidity strain
LONDON, Dec 17, (RTRS): Bond bankers are scrambling to secure business from beleaguered Gulf sovereigns, which are expected to engage in record breaking fundraising next year to cover widening fiscal deficits.
Countries in the Gulf Cooperation Council are tipped to need more than $250bn over the next two years, through a variety of means, as they seek to combat the effects of sliding oil prices.
“We now estimate that the aggregate fiscal deficit of the GCC in 2015-2016 will be close to $265bn, higher than previously estimated,” Mathias Angonin, an analyst in Moody’s sovereign risk group, told IFR. “This does not include debt that needs to be refinanced, so the financing needs will likely be higher than that.”
While much of that money will be raised through asset sales and new taxes, including a proposed introduction of VAT in the UAE, bond markets will also become an important source of funds.
Bankers say sovereigns could raise at least $15bn in the international market next year. That would be more than all GCC sovereign dollar debt issuance from 2013 to the end of 2015.
“Next year we expect more sovereign supply from the region,” said Iman Abdel Khalek, a director in Citigroup’s Middle East DCM business. “Some borrowers are more price sensitive than others and look at funding opportunistically.”
Saudi Arabia is likely to steal the show with the sovereign heavily rumoured to make its long-awaited debut in the international market.
The Kingdom’s finances are coming under greater pressure with the IMF estimating its budget deficit this year will be 20% of GDP. Although it still has $640bn in net foreign assets, it can’t keep funding its projected deficit forever if oil prices remain depressed.
“Saudi Arabia has about four years left of financing if it only relies on FX reserves and oil stays where it is,” said an analyst.
Bankers reckon Saudi will seek to raise at least $5bn in the international market next year, complementing its funding in the local market, which it tapped for the time since 2007 in July.
The sovereign has since raised SR95bn ($16bn) from domestic investors and is borrowing on average SR20bn of new money a month.
Saudi’s expected foray into the dollar market in 2016 has already got the leading international banks - keen to scoop the coveted mandate - sounding it out, according to sources.
“For Saudi, will $5bn make or break anything? Of course not,” said a debt capital markets official from a bank rumoured to have already approached the sovereign. “But it is an opportunity to diversify their source of funding.”
Not everyone is convinced that Saudi Arabia will pack the punch that bankers are hoping for.
“Saudi has leaked that it is going to do a big deal,” said a UAE bond banker. “It wouldn’t surprise me if they come with [a smaller deal of] $1bn and get an enormous response.”
While there is little doubt that Saudi Arabia’s rarity in the market and Aa3/A+/AA ratings mean it will sail through even a $5bn deal, others may find it tougher. Bankers have touted Oman, Qatar, Dubai, Bahrain and even Kuwait as potential issuers next year.
The fact that GCC sovereigns require the most financing in years comes at a difficult time for the region’s investors.
Gulf banks have seen liquidity dry up as they too harbour the ill effects of low oil prices.
Continued on Page 31 Afghan money changers wait for customers at the currency exchange Sarayee Shahzada market in Kabul on Dec 17. The Afghani exchange rate is one US dollar equal to 68.40 Afghani which is set by the Central Bank of Afghanistan. (AFP)