The GCC bond and Sukuk market demonstrated improved activity in Q2 2016 especially on the sovereign front as the market witnessed prominent issuances from regional governments demonstrating appetite for debt in the region still exists. However, the lower oil prices, which has contributed to increased budget deficits and slower growth, has led to same credit deterioration such as the recent downgrade by rating agencies of Saudi Arabia, Oman and Bahrain.
Bond Issuances
Q2 2016 marked one of the largest bond issuances in the region by the Government of Qatar amounting to US$9 billion, followed by the Government of Abu Dhabi amounting to US$5 billion, its first in 7 years. The Government of Qatar’s US$9 billion bond was a US$3.5 billion issuance with an issue price of 98.924% of the principal amount, a US$3.5 billion issuance with an issue price of 98.963% of the amount, and US$2 billion issuance with an issue price of 97.606% of the principal amount. The Government of Abu Dhabi issued US$5 billion of bonds with a US$2.5 billion issuance with an issue price of 99.753% of the aggregate nominal amount and a US$2.5 billion with an issue price of 99.562% of the aggregate nominal amount.
In corporate bonds issuances, Gulf International Bank BSC-Riyadh issued its US$533 million 5 year bond with a coupon rate of 3.4%, while Abu Dhabi National Energy Co PJSC (TAQA) issued a US$1 billion bond, spread into two senior notes tranches of US$500 million each, due in 5 and 10 years respectively.
Sukuk Issuances
Bank Al-Jazirasuccessfully issued a US$533 million 10 year Sukuk, with an option for the lender to redeem the Sukuk after five years.
On the sovereign front, the Central Bank of Bahrain was an active contributor in the region issuing three Sukuk Al Salam each worth US$114 million (BD 43 million) and three short term leasing type Sukuk each worth US$69 million (BD 26 million).
Steven Drake, Head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East region said: “Bond and Sukuk activity improved compared to the previous quarter of this year, with notable issuances from regional governments such as of Qatar and Abu Dhabi and this is expected to pick up further in the next quarter as the Kingdom prepares its first ever proposed USD 10 billion bond issuance. However, challenging market conditions and uncertainty amongst investors and issuers may impact activity for the remainder of 2016 and a surge in borrowing cost could weigh on market appetite.
(Wealth Monitor / 03 August 2016)
---Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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