Booming MENA bond market fuels diversification drive

25 October 2019

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Record levels of debt issuance by Middle East and North Africa (MENA) governments are playing a critical role in the diversification drive across the region.

In 2016, Saudi Arabia became the new “Bond King” when it launched the biggest-ever Emerging Market Sovereign Issuance (EMSI), with a USD17.5 billion bond sale.1

To date, Saudi Arabia, Qatar, United Arab Emirates (UAE), Bahrain and Kuwait all became eligible for the EMBI Global Diversified2 (EMBIGD), EMBI Global (EMBIG) and EURO-EMBIG indexes, raising the regions profile and beckoning international investors.

GCC countries now represent around 17.1 percent of EMBI Global Diversified and EMBI Global series; estimated index inclusion will generate USUSD55 billion this year, according to HSBC.

The upgrade has boosted MENA’s states weighting in the EMBI to just around 20 per cent by the end of September, compared to 6 per cent at the end of last year.

Total Government Gross Debt for Selected MENA states
(Percent of GDP)
  2000–15 2016 2017 2018 2019 2020
Bahrain 30.6 81.3 88.2 93.4 100.2 103.6
Kuwait 12.8 10.0 20.7 14.8 17.8 21.0
Oman 11.8 32.5 46.9 50.9 61.3 63.1
Qatar 31.2 46.7 49.8 48.4 52.7 45.9
Saudi Arabia 34.6 13.1 17.2 19.1 23.7 25.4
UAE 11.5 20.2 19.7 18.7 19.2 19.0
Egypt 82.1 96.8 103.2 92.6 86.9 84.6

Source: International Monetary Fund

Bonds in the billions and soaring sukuk’s

The inclusion in EMBI has raised GCC bonds’ profile among international investors and increase the size of the investible emerging-market universe.

This scale of primary issuance creates much deeper credit markets, which helps governments and corporates raise capital via the bond markets in the future.

Over the past 4 years international allocations have averaged at 50-60 per cent which means over USD200 billion of inflows into the region, according to HSBC.

Corporations are also tapping debt markets. Earlier this year, Saudi Aramco’s3 USD12 billion bond was oversubscribed to the tune of USD100 billion, in a record breaking vote of confidence.

Middle East corporations are also looking to go green and experimenting with hybrids. For example, HSBC was the sole green structuring adviser for Majid Al Futtaim who issued the the world’s first benchmark-size Green Sukuk by a corporate.

HSBC is in the privileged position of leading these types of landmark issuances and has recently won the Middle East Best Bank for Sustainable Finance at the Euromoney Awards for Excellence 2019.4

This year the MENA entities could raise as much as USUSD139 billion between international and local issuances, according to a report by S&P Global Ratings. Close to 44 per cent of the borrowing in 2019 will go toward refinancing maturing long-term debt, resulting in an estimated net borrowing requirement of USD76 billion, the report found.

“Most GCC countries have been tapping international debt markets in recent years to meet their funding needs, diversify funding sources, and reduce liquidity pressures in the domestic banking systems,” S&P said.

This might be the tip of the iceberg. S&P Global5 believes GCC countries will need to raise USUSD300 billion in debt between 2018 and 2021, as they rollout multi-billion infrastructure and strategic projects.


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