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June 11, 2017 | 13:30 | Dubai
Total gross bond issuance in the GCC has already surpassed 2016’s total value in the first five months of this year, according to Fisch Asset Management, a global leader in convertible and corporate bond strategies. Current market conditions have created a favourable landscape for new bond issuances, with the GCC Sukuk market issuing up to USD 22 billion in sovereign and corporate bonds year-to-date.
In 2016, a total of USD 21 billion bonds were issued; this figure is up by 74.6% on 2015 when issuances amounted to USD 12.6 billion.
Positive performance in 2017 is linked to ongoing strong investor demand for emerging market assets, due to the higher yield available compared to developed markets and supported by upbeat global economic growth.
Philipp Good, CEO at Fisch Asset Management, commented:
“Many factors have contributed to this positive trend in 2017, for example lower oil prices mean higher funding requirements, there is attractive pricing after markets have rallied, there is ample liquidity in the region and there has been a strong revival in credit markets on a year-to-date basis so far. The latest example of an issuer taking advantage of this positive environment is the Sultanate of Oman. It successfully completed a USD 2 billion issue on 23 May, with the order book three times oversubscribed. I view this as a huge success and a clear indicator of confidence throughout the region.”
Corporate debt in the Middle East has also been a solid performer in 2017. Spreads of investment-grade rated bonds have dropped by 20 bps, significantly outperforming Asia, where spreads have seen a decline of only 4 bps. Other regions have seen a more pronounced narrowing of spreads, but this needs to be seen against the backdrop of Middle Eastern bonds already displaying the lowest spreads of all emerging markets regions at 170 bps. By comparison, Asian spreads stand at 195 bps, while Latin American ones are the highest at around 250 bps. This development is a result of the inflows into emerging markets and reflects the comfort global investors have with the GCC region, according to Fisch.
Dr. Hansjoerg Herzog, Head of Sales at Fisch, said:
“We have found that after this strong regional performance, GCC corporate treasurers are increasingly aware of the need to explore alternative capital market funding strategies, such as global convertible bonds. We therefore expect these kinds of instruments to become increasingly relevant as GCC markets develop.”