GCC fixed income issuances reach KD 140.8bn during 2019

Total bond issuances in MENA rises 12.6% to $133.3bn, led by Gulf countries

Report prepared by KAMCO

Research

GCC fixed income issuance growth was back in the green during 2019 with record issuances during the year as compared to a y-o-y decline in the previous year. Total issuances reached USD 140.8 Bn during the year as compared USD 115 Bn during 2018 led by higher issuances of both bonds and sukuks with double digit growth rates vs the previous year. Bond issuances during the year reached USD 94.4 Bn as compared to USD 74.9 Bn during 2018, recording a growth of 26%. On the other hand, Sukuk issuances increased by 15.8% during the year to reach USD 46.4 Bn as compared to USD 40.1 Bn during 2018.

Total fixed income issuances for the MENA region increased by 13.2% to reach USD 179.8 Bn in 2019 as compared to USD 158.8 Bn during the previous year. The y-o-y increase in 2019 was solely led by GCC countries that more than offset the decline in issuances by non-GCC MENA countries. There were no sukuk issuances in the five non-GCC MENA countries (Egypt, Jordan, Lebanon, Morocco and Tunis) in 2019 as compared to marginal issuance of USD 0.3 Bn in 2018 coming from Morroco and Jordan. Bond issuances from the five countries declined for the fourth consecutive year in 2019 and stood at USD 38.9 Bn in 2019 witnessing a decline of 10.6% from a total issuance of USD 43.5 Bn in 2018. For the MENA bonds market, USDdenominated bonds topped at USD 84.2 Bn followed by EGP and QAR at USD 10.0 Bn and USD 8.3 Bn, respectively. In terms of currency of issuance, MYRdenominated sukuks topped the global sukuk issuance market at USD 48.3 Bn followed by USD and SAR at USD 28.8 Bn and USD 18.3 Bn.

The increase in issuances in the MENA region came on the back of declining oil revenues, especially in the case of the GCC countries, that led to a deterioration of fiscal performance. As per IMF, GCC fiscal deficit is estimated to have increased to 2.4% of GDP in 2019 and is further expected to increase to 3.3% in 2020. Governments are increasingly seeking private sector participation in improving the economic balance by growing non-oil revenues. This led to higher borrowing by corporates.

Furthermore, debt issuance market got a big boost in 2019 with almost 75 bps decline in benchmark rates that motivated governments and corporates to take the debt route along with privatization of state-owned enterprises.

For 2020, we expect sustained levels of issuances from GCC corporates as lower rates entice fund rising via bonds and sukuks. However, the expected positive equity market performance in the region is expected to offset some of the impact of lower rates. Governments are also expected to tap the privatization route, although with rising deficits amid lower oil prices may lead to marginal increase in debt issuances. US & MENA Rate Hikes After four rate hikes in 2018, the US Fed almost reversed all of 2018’s rate hikes and lowered benchmark interest rates three times in 2019. The Fed decreased the rate by 75 basis points in three 25 bps steps to less than 2%, to a range of 1.5%-1.75%. The lowering of rates came on the back of increasing uncertainty about economic growth rates led by US-China trade disputes further supported by muted inflation pressures. The third rate cut in September-19 was led by signs of slowing economy although unemployment rates reached one of the lowest levels and US economic growth was stable. And as trade deal talks between the US and China have progressed since the start of the year, the US Fed is expected to leave the rates unchanged at current levels.

Rate hikes within the GCC were more differentiated with central banks using different tools in response to US rate hikes. Kuwait’s central bank lowered its discount rate once during the year by 25 bps in October ‘19 after the third installment from the US Fed. Bahrain’s central bank also lowered rate twice during the year during July ‘19 and October ‘19 by 25 bps each and closed the year with an overnight repo rate of 4.0%. For the rest of the GCC countries, the response was in line with the US Fed actions. Saudi central bank lowered its rate to 2.25% by the end of the year with a full year decline of 75 bps. UAE and Qatar central banks also lowered rates by 75 bps during the year to close the year at 2.0% and 4.25% for the repo rates, respectively. Fixed Income Market Performance

Regional fixed income indices continued to outperform global indices with double digit performance across the board as compared to mostly midsingle digit returns for global benchmarks. The Global Investment Grade Debt index witnessed a growth of 6.8% during the year while the Global High Yield Index witnessed a surge of 12.6%. Global sukuk index grew at 6.9%. On the other hand, the MENA Bonds index witnessed one of the highest yearly returns of 14.5% whereas the MENA sukuk index grew by 10.3%. The blended MENA Bonds & Sukuk index grew by 13.6% during the year. For the broader EM universe, the EM USD Aggregate Total Return Index witnessed a growth of 13.1% whereas the EM GCC USD Sukuk Total Return index surged 12.0% in 2019. MENA Bond Issuances After declining for two consecutive years in 2017 and 2018, bond issuances in the MENA region increased during 2019 led by higher issuances primarily from GCC countries that was partially offset by a decline in issuance from nonGCC MENA countries. Total bonds issued by MENA countries increased by 12.6% to reach USD 133.3 Bn as compared to USD 118.4 Bn during 2018. Bond issuances by GCC countries stood at USD 94.4 Bn in 2019 as compared to USD 74.9 Bn in 2018, while non -GCC MENA countries recorded a decline of 10.6% with issuances of USD 38.9 Bn in 2019 as compared to USD 43.5 Bn during 2018. In terms of type of issuer, MENA corporate bonds witnessed a solid double digit growth of 21.9%, almost equal to the growth seen during 2018, with issuances reaching USD 47.7 Bn in 2019 as compared to USD 37.5 Bn in 2018. On the other hand, MENA government issuances accounted for almost two-thirds of the issuances in the region with total issuances increasing after two consecutive years of decline, reaching USD 87.6 Bn in 2019 as compared to USD 80.9 Bn in 2018. UAE regained its top position in the MENA region in terms of bond issuances in 2019 that reached USD 34.4 Bn as compared to USD 20.4 Bn in 2018. The increase was led by both corporate and government issuers with the former issuing bonds worth USD 23.7 Bn in 2019 vs. USD 20.0 BN in 2018. UAE government also issued bonds in 2019 totaling USD 10.8 Bn as compared to marginal issuances of USD 0.3 Bn in 2018. The Abu Dhabi government offered a three tranche bond of USD 10 Bn in September that followed a USD 750 Mn offering from Emirates Development Bank in March ‘19. Qatar was the second biggest issuer with USD 25.4 Bn in total issuance during 2019, a marginal decline from USD 26.0 Bn in 2018. The decline in Qatar was mainly due to a decline in corporate issuances that reached USD 5.1 Bn in 2019 as compared to USD 9.4 Bn in 2018. Qatari government issuances, on the other hand, increased by almost USD 4 Bn to reach USD 20.3 Bn in 2019. Bond issuances in Saudi Arabia, the third largest issuer during 2019, almost doubled to USD 24.8 Bn from USD 13.9 Bn during the previous year. The increase was primarily led by higher corporate issuances that increased from USD 2.0 Bn in 2018 to USD 13.3 Bn in 2019 while government issuances declined marginally to USD 11.5 Bn from USD 11.8 Bn in 2018.

Continued on Page 23