GCC bond markets spurred by cheap oil
21st November, 2016|Alastair ODell
Developments in Saudi Arabia and the UAE suggest that sustainable, liquid GCC bond markets are taking hold
Bond markets across the GulfCooperation Council (GCC) are undergoing rapid development, in terms of both sovereign and corporate issuance.
Theemergence of a stronger regional fixed income market provides a concreteexample of how the lower price, which halved from above $100 during the second half 2014 and has remained low and volatile since, has spurred market reform.
FollowingSaudi Arabia's launch of a $17.5bn sovereign bond, Ashish Marwah, senior director – lead investment manager at ADS Securities in the UAE, said that Gulf countriesare now looking to build yield curves to provide a basis for corporates tostart pricing from.
“Look at howstrong the demand is for Saudi bonds among both primary and secondaryinvestors,” he said. “This is increasing liquidity in the market and increasingthe participation of foreign investors, which creates a two-way market that isbeneficial for all investors.”
One factorthat is making MENA bond markets attractive is the contrast with developedmarkets where many have negative yields, said Saleem Khokhar, executivedirector and head of fund management at NBAD in the UAE.
Beyond the relativeyields, Khokhar points out that in absolute terms the region has favourablefundamentals. “When you look at the GCC region, you see good reserves, lowdebt-to-GDP ratios, and strong government backing for a number of the GREs(government-related entities) and corporates.
“So,thinking beyond government bond issues, when have got our companies going tothe market and raising debt – as they will in the near future – you have quitea strong case for a solid issue, plus decent yield coming to the market. Thatis all positive.”
However, the boost to the bond markets didn’tmean an imminent pickup in moribund initial public offering (IPO) activity was also likely, according to Khokhar.
“There won’t be a general pickup in listings, but specific assets willcome through from the public sector, such as the Saudi Aramco IPO, and thereare plenty of assets that could come through on the UAE side of the equation aswell,” he added.
