Gulf Arab issuers selling a record supply of bonds are overwhelming cash-strapped local banks and will need to turn to foreign investors for funding, according to Waha Capital PJSC.
Corporate and sovereign sales from the region will rise to as much as $70 billion this year compared with average annual issuance of about $25 billion over the last decade, said Mohamed El Jamal, managing director of capital markets at Abu Dhabi-based investment firm Waha Capital.
"The price setter will be the international buyer, not the local or regional buyer," Jamal said in an interview with Bloomberg TV on Tuesday. There’s been “a significant shift in the equation of supply and demand,” he said.
Banks in the six-nation Gulf Cooperation Council were traditionally the main buyers of regional debt when liquidity was ample and oil prices were high. The plunge in energy prices slowed deposit growth and tightened cash holdings across the region’s financial industry.
Nations from Kuwait to Qatar have issued bonds to plug budget deficits created by declining oil and gas revenues, while companies such as Emaar Properties PJSC and DP World Ltd. have raised money this year for investment. Saudi Arabia is planning to raise at least $10 billion in its first international debt offering in October.
Pricing for Saudi debt will hover near the country’s five-year credit default swaps, currently at 137 basis points, he said. That will rise by 50 basis points for 10-year notes, and by 70 to 75 basis points for 30-year securities, according to Jamal. CDS for the Kingdom have quadrupled over the last two years from about 40 basis points amid the oil-price slump.
"No doubt there’s going to be a record year,” Jamal said. “Is there a question of oversupply? I think these deals will get done. It’s just a question of what’s the clearing price for these transactions."