For Asian investors searching for returns across emerging markets, the GCC has long been considered a relatively low-risk, higher-yielding option. But with geopolitical tensions reaching a boiling point, and a number of GCC states fiscally exposed to oil price swings, former safe havens could become a riskier bet.
A closer look at the major strengths, weaknesses, opportunities and threats influencing the investment and debt capital markets climate in the GCC economies.
With the local economy starting to turn a corner and new regulations and incentives coming on stream, UAE-based property developers have much to celebrate. But looking beyond the large publicly-traded Emaars and Damacs of the region, many smaller developers appear caught in a low liquidity environment unlikely to ease anytime soon. This is prompting many to hunt for alternative sources of funding, often for the first time.
The growth of the GCC debt capital markets in the first decade of this century was reasonably stunted as the region’s need for debt funding was negligible in the face of abundant liquidity ensuing from high oil prices. Due in large part to its sources of revenue and the prevalence of currency pegs, the region’s borrowers have predominately relied on US dollar funding. But as the region’s corporate entities grow and become more sophisticated, requiring deeper and more diverse domestic funding markets, that looks set to change – with regional governments taking the lead.
The UAE-based aluminium giant timed its return to the loan market perfectly with a jumbo deal that attracted participation of 25 financial institutions and was arranged in less than three months.
The benchmark-sized international debut sukuk received more than USD5bn worth of orders – a similar level of oversubscription to the recent Saudi Aramco jumbo bond, a tremendous start to the Saudi dairy giant’s new USD2bn Islamic finance programme.
With further bond index inclusion on the horizon and oil prices holding steady, CFOs and Treasurers are optimistic about the GCC region’s credit market prospects. But the accelerated pace at which today’s markets are evolving is reducing long-term visibility and raising questions over the kind of macro and monetary policy environment borrowers and investors are likely to find themselves in going forward, according to fundraising specialists who participated with an exclusive CFO roundtable co-hosted by HSBC and Bonds & Loans in Dubai.
First Abu Dhabi Bank marked MENA’s debut public sukuk issuance in 2019 with its USD1bn senior sukuk. Riding on a wave of investor demand, the bank tapped the market twice, securing the largest single public issuance from a conventional bank sukuk in the region.
A much-oversubscribed sovereign bond issued by the Republic of Egypt earlier this year reinforced a sense of optimism among emerging market investors about one of the region’s most promising economies, but analysts caution that the sustainability of the country’s improving macro, growth and investment outlook fundamentally hinges on deeper empowerment of the private sector and removal of the military from civilian industry.
Despite a positive macro outlook, a blend of rapidly rising regional tensions and an evolving trade dispute between China and the US will weigh more heavily than previously thought on the GCC’s economic prospects in the medium term, argues Dr. Nasser Saidi, Founder and President of Nasser Saidi & Associates and Lebanon’s former Minister of Economy.
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12 Jul 2019