Kuwait – Mubasher: Total bond issuance in the MENA region touched $105.7 Billion during 2015, a strong leap of 67% or $42.3 billion as compared to the previous year, said KAMCO Research.
Bond issuance activity got a boost from Saudi Arabia after the Kingdom issued bonds worth $30.6 billion as compared to no issues in the previous year. Saudi Arabia resumed issuing local currency bonds to banks in July-15 for the first time since 2007 in order to cover budget deficits due to the fall in oil prices. The Kingdom issued an average of SAR 20 billion ($5.3 billion) every month since it started the program. Nevertheless, the market continues to be dominated by Egypt that issued $33.8 billion in bonds during the year, an increase of 40% over the previous year level. The total number of issuances witnessed an increase of merely 4.5% during 2015 to reach 253. However, the average size of the bond offering in MENA was much larger as compared to the previous year, according to the research firm.
Government institutions continue to be the biggest issuers of bonds in the region with total issues having more than doubled to $88.8 billion during 2015. Issues by banks totaled $13.5 billion in 2015 as against $12.2 billion during 2014. In terms of the share of total issuance, sovereign bonds accounted for 85% of total issues in 2015, a much higher share as compared to 66% in 2014, whereas the share of corporates slumped from 30% in 2014 to merely 14% in 2015. Bond issues in Kuwait saw a significant jump from $1.6 billion in 2014 to $5.2 billion in 2015 primarily on the back of higher issuance by the government further supported by capital boosting bonds launched by NBK in order to meet Basel III requirements and to boost Tier 2 capital.
The bond market outlook for 2016 largely shows a grim picture with a majority of the fund managers expressing a more bearish view for the overpriced bond market as compared to compelling valuations for the equity markets. The rate hike decision in Saudi Arabia, Kuwait and Bahrain following the U.S. rate hike in December-15 has pushed up short-term interest rates and reduced bond yields thereby resulting in shrunken buying for Gulf bonds.
In addition, the severe decline in oil revenues has affected deposits with local banks resulting in significantly tight liquidity conditions. Nevertheless, expected issuance in 2016 include international bond issue by Saudi Arabia as indicated by the country’s finance minister. Moreover, the yield on the expected bond issuance would largely depend on oil price. The yield spread over US treasuries would be much larger if oil price continues to be at low levels but if it increase to $50/b level, yields spreads could be in the range of 200-250 bps over US Treasuries.
