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March 8, 2017

Written by Tamás Varga – Dealogic Research

Sovereigns and banks drive debt issuance in the region

Lower oil prices have pushed many Middle Eastern issuers to raise capital in order to fund their expected budget deficits in the near term. Sovereign issuers (SSA) are the key drivers of the market and may be preparing themselves to face further fluctuations in oil prices. Financial issuers (FIG), the other key group, may also increase their activity in debt capital markets (DCM) due to liquidity requirements from Basel III. Since banks in the region often have a contractual mismatch in maturity between long-term lending and short-term deposits, they have already started to issue debt with longer tenors in order to meet Basel implications.

Oil price drops, DCM picks up

The price of crude oil dropped in mid-February last year to $29.44 a barrel, the lowest since 1998. Since then, Middle Eastern sovereigns from the Gulf Cooperation Council (GCC) have been issuing multi-billion dollar deals. Out of the six GCC countries, Saudi Arabia, Qatar, Oman, and Bahrain have all issued debt since last February, raising a total of $39.2bn via 10 deals. Their activity has contributed to record highs in 2017 — including YTD volumes from both Middle Eastern SSA and FIG, which stood at $10.4bn and $6.2bn, respectively. Overall 2017 YTD volume for Middle Eastern DCM also set a new record with $18.0bn, more than triple the $4.2bn from the same period last year. 2017 volume will continue to grow since Kuwait, a fifth GCC member, is expected to visit primary debt markets for the first time on record with a $10.0bn debut later this month.

US dollar dominates but euro gains popularity

So far this year in the Middle East, US dollar–denominated issuance reached $14.4bn, up 280% from $3.8bn in the same 2016 period and the highest YTD volume on record. At the same time, euro-denominated issuance totaled $3.2bn via 5 deals, the highest YTD volume and activity on record versus zero deals in the same 2016 period.


Data source: Dealogic, NASDAQ (oil prices), as of March 7, 2017