According to new research by Fitch Ratings, GCC debt capital market (DCM) issuances should keep increasing through 2024 and 2025 and are already getting close to USD 1 trillion outstanding, albeit with fragmentation throughout the region.
Slower growth is predicted than in Q1 2024. Expected declines in interest rates and oil prices, together with efforts to further diversify funding sources and grow the DCMs, will propel government issuances.
Six GCC (Gulf Cooperation Council) sovereigns are all on “Stable Outlook” and four are investment-grade. Over the last fifteen months, Fitch has upgraded Oman, Qatar, and Saudi Arabia.
Saudis Will Intensify DCM Efforts
With budget deficits driving issuance, Saudi Arabia wants to expand its DCM. Fitch Ratings projects that even in the face of surpluses, UAE issuance will continue, while DCMs in Qatar and Oman are declining and these governments will have to repay debt in 2024. Kuwait has fewer financial choices because there is no debt law. Amid large deficits, Bahrain depends on GCC money and DCM access.
“Most GCC nations have come a long way in building their DCMs, with the bloc currently accounting for over a third of total emerging-market dollar issuance, excluding China,” said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch Ratings.
However, the DCMs are less established and at various phases of maturity than more developed areas. The corporate funding culture is designed for bank loans, and banks depend on deposit funding. More varied and extensive involvement of issuers and investors would promote growth.
GCC DCM Increases By 7% Annually
As of the end of Q1 2024, the GCC DCM had increased 7% year over year, with the UAE and Saudi Arabia holding the majority of the USD 940 billion outstanding. By end-Q1 2024, Sukuk accounted for around 40% of GCC DCM outstanding; bonds made up the remaining amount.
Over 70% of GCC US currency Sukuk (USD 104.3 billion; 81% investment-grade) are rated by Fitch. Limited standardisation and Sharia complications confront Sukuk.