GCC sukuk issuances likely to decline in 2021: Kamco

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GCC sukuk issuances likely to decline in 2021: Kamco

Jul 7, 2021 2:28 PM

Government bond and sukuk issuances in the GCC are expected to slow down led by higher oil prices that is easing pressure on the fiscal front amid opportunistic issuances from the government to take advantage...

Government bond and sukuk issuances in the GCC are expected to slow down, led by higher oil prices that is easing pressure on the fiscal front amid opportunistic issuances from the government to take advantage of low rates, a report said.

Corporates, on the other hand, are expected to see growth compared to last year but that may not fully offset the decline from government issuers during the second half (H2) of 2021, said Kuwait-based financial powerhouse Kamco in its “GCC Fixed Income Market Update”.

GCC issuances in 2020 showed flattish growth as compared to 2019 and this came despite the pandemic resulting in record decline in oil prices and record high fiscal deficits. One of the key reasons was that debt had reached record high levels in the region as well as globally and there were significant uncertainties related to the future course of the pandemic and the development of vaccines.

As a result, government slowed down its issuances while corporates piled on debt during H2-2020 for business investments as well as to take advantage of low rates.

This scenario further evolved as we entered 2021 with the successful development of several vaccines in addition to a slowdown in the spread of the virus as a result of the restrictions and lockdowns. The pace of vaccinations has accelerated globally and in the GCC with close to 0.3 million vaccination doses being administered daily in Saudi Arabia, UAE, Qatar and Bahrain.

New cases have also shown a significant decline in the region, although uncertainties relating to new variants continue to haunt authorities resulting in new travel restrictions.

The trend this year has so far remained in line with H1-2020 levels with total issuances at $80 billion. However, unlike last year where governments dominated the fixed income market, the bulk of the issuances this year were from corporates. Private businesses raised close to $50 billion as against $30 billion from the government in H1-2021.

The motivation behind higher corporate issuances were apparent including the low interest rates, recovering economy and a push from the regional government to accelerate vaccinations and kickstart the economy.

Data from Bloomberg showed that GCC government and corporate fixed income instrument maturities at $22.3 billion for the remainder of the year. This will easily push issuances over the $100 billion mark for the full year. In addition, there are significant deals in the pipeline that would add to total issuances but is expected to fall short of last year’s levels. – TradeArabia News Service