Saudi bond sale boosts Gulf debt activity in Q4

Debt market activity in the Gulf region outshined the sluggish growth of initial public offering (IPO) in fourth quarter 2016, as Saudi Arabia issued its first international sovereign bond, consultancy PWC said in its quarterly IPO activity update.

The Saudi government issued $17.5 billion of debt in Q4 2016, overtaking Argentina’s previous record for an emerging market sovereign bond sale – a $16.5 billion issuance in April this year.

According to PwC, the pressures of sustained budget deficit amid low oil prices have pushed Gulf governments to tap the debt market.

“We expect debt markets to surge across 2017 as regional governments continue to seek substantial funding to offset their budget deficits,” said Steve Drake, head of PwC’s Capital Markets and Accounting Advisory Services team in the Middle East, said in a statement. “The concern remains the potential oversupply in debt market which could result in an increase in the cost of borrowing.”

Over the year, Qatar, UAE and Oman issued sovereign bonds amounting to $9 billion, $5 billion and $4.5 billion, respectively, benefitting from global investor appetite to low-risk fixed income instruments, and high credit ratings along with good yields.

Meanwhile, IPO activity in the quarter was quiet with one IPO from Eskan Bank Realty Income Trust on the Bahrain Bourse, raising $36.6 million. The IPO was 95.5 percent subscribed and marked the first offering on the exchange in two years, the report said.

On year-on-year (YoY) basis, Saudi Arabia led the market offerings in 2016 with three IPOs raising a total of $745 million, representing 75 percent and 95 percent, respectively, of the overall Gulf IPO activity, PwC said.

“The year was marked by geopolitical uncertainty, ongoing economic downturn adding to increasingly volatile oil prices. Further fiscal tightening, austerity measures and declining liquidity in the financial sector continue to weigh heavily on investors’ confidence,” Drake said.

“Against this volatile environment, many offerings were put on hold, as businesses and investors wait for improved market conditions prior to investing in fresh equity,” he added.

Drake said the outlook for 2017 is positive as market participants may regain confidence sooner than expected as geopolitics in the region stabilize and oil prices recover.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com