Gulf bonds likely to set record in 2021 amid budget squeeze

DUBAI: International debt sales from the six-member Gulf Cooperation Council are likely to notch another record year in 2021 as governments need to fill wider deficits and corporates look to grab money on the cheap amid low rates.

The oil-rich region saw a second consecutive year of record international bonds, topping $100 billion, as issuers’ finances were battered by the COVID-19 pandemic along with low oil prices, with a few issues still possible before year-end.

“I think overall, the market will grow. We can easily add $7-10 billion more to 2020 total issuance,” said Khalid Rashid, head of debt capital markets for the Middle East and North Africa at Deutsche Bank.

S&P Global Ratings said in July that GCC government balance sheets are expected to continue to deteriorate up until 2023.

Kuwait, which has not issued dollar bonds since 2017, could return to the market next year, depending on a new debt law that would allow it to raise more funds overseas and help it overcome a liquidity crunch.

James Reeve, chief economist at Samba Financial Group, estimated Saudi Arabia’s financing requirements at about $60 billion next year, of which about $18 billion would be covered via eurobonds.

More issuance is expected from Dubai, which in September returned to the public debt markets for the first time in six years. Bankers expect it to issue another $2 billion next year as key sectors of its economy continue to be squeezed.

For sub-investment grade Bahrain and Oman, issuing debt is vital to replenish dwindling foreign reserves, though Oman may need explicit support from Gulf neighbors as investors are increasingly concerned about its worsening credit trajectory.

Hasnain Malik, head of equity strategy at Tellimer, said that he expects more consolidation among government-related enterprises, removing duplicated cost, and “raising of debt for the stronger business models that result from this consolidation is likely.”

Among corporates, a new entry could be Abu Dhabi National Oil Company (ADNOC), which received a credit rating last year, a banker said. ADNOC did not respond to a request for comment.