Gulf bonds likely to set record in 2021 amid budget squeeze

Gulf bonds likely to set record in 2021 amid budget squeeze
Kuwait could return to the bond market, depending on a new debt law that would allow it to raise more funds overseas and help it to overcome a liquidity crunch. (Shutterstock)
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Updated 27 November 2020

Gulf bonds likely to set record in 2021 amid budget squeeze

Gulf bonds likely to set record in 2021 amid budget squeeze
  • International debt sales from GCC rise as governments fill deficits and corporates hunt cheap money amid low rates

DUBAI: International debt sales from the six-member Gulf Cooperation Council are likely to notch another record year in 2021 as governments need to fill wider deficits and corporates look to grab money on the cheap amid low rates.

The oil-rich region saw a second consecutive year of record international bonds, topping $100 billion, as issuers’ finances were battered by the COVID-19 pandemic along with low oil prices, with a few issues still possible before year-end.

“I think overall, the market will grow. We can easily add $7-10 billion more to 2020 total issuance,” said Khalid Rashid, head of debt capital markets for the Middle East and North Africa at Deutsche Bank.

S&P Global Ratings said in July that GCC government balance sheets are expected to continue to deteriorate up until 2023.

Kuwait, which has not issued dollar bonds since 2017, could return to the market next year, depending on a new debt law that would allow it to raise more funds overseas and help it overcome a liquidity crunch.

James Reeve, chief economist at Samba Financial Group, estimated Saudi Arabia’s financing requirements at about $60 billion next year, of which about $18 billion would be covered via eurobonds.

More issuance is expected from Dubai, which in September returned to the public debt markets for the first time in six years. Bankers expect it to issue another $2 billion next year as key sectors of its economy continue to be squeezed.

For sub-investment grade Bahrain and Oman, issuing debt is vital to replenish dwindling foreign reserves, though Oman may need explicit support from Gulf neighbors as investors are increasingly concerned about its worsening credit trajectory.

Hasnain Malik, head of equity strategy at Tellimer, said that he expects more consolidation among government-related enterprises, removing duplicated cost, and “raising of debt for the stronger business models that result from this consolidation is likely.”

Among corporates, a new entry could be Abu Dhabi National Oil Company (ADNOC), which received a credit rating last year, a banker said. ADNOC did not respond to a request for comment.

Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades
Updated 16 January 2021

Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades

LONDON: Global shares stumbled on Friday as hopes of a fiscal boost from a $1.9 trillion US stimulus plan were smothered by the prospect of stricter lockdowns in France and Germany and a resurgence of COVID-19 cases in China.
European stocks followed Asian markets lower, with the pan-European STOXX 600 down 0.8 percent and London’s FTSE 100 0.8 percent weaker, with the latter clobbered by data showing Britain’s economy shrank in November for the first time since the initial COVID-19 lockdown last spring.
The MSCI world equity index, which tracks shares in 49 countries, was 0.3 percent lower. S&P 500 e-mini futures shed 0.3 percent to 3,779.
Oil prices, which had risen on a weak dollar and strong Chinese import data, dropped as COVID-19 concerns in China hit sentiment.
Brent was down $1.33, or 2.3 percent, after gaining 0.6 percent on Thursday. US West Texas Intermediate crude was down $1.17, or 2.1 percent at $52.44 a barrel, having risen more than 1 percent the previous session.
Brent and US crude were heading for their first weekly declines in three weeks.
Spot gold rose 0.1 percent to $1,847.00 per ounce.
While oil producers are facing unparalleled challenges balancing supply and demand equations with calculus involving vaccine rollouts versus lockdowns, financial contracts have been boosted by strong equities and a weaker dollar, which makes crude cheaper, along with strong Chinese demand.
“The recent resurgence in coronavirus infections, appearance of new variants, delayed vaccine rollouts and renewed lockdown measures in most major OECD economies has clouded the economic and demand recovery,” said Stephen Brennock of oil broker PVM.
“Simply put, near-term demand expectations aren’t too promising.”
Earlier on Friday, an Asian regional share index had edged near record highs after US President-elect Joe Biden proposed a $1.9 trillion stimulus plan to jump-start the world’s largest economy and accelerate its response to the coronavirus.
In prime time remarks on Thursday, Biden outlined a proposal that includes $415 billion aimed at the COVID-19 response, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities hard hit by the pandemic.
But that initial boost later faded as risk appetite waned, lifting bond prices and the dollar, and hitting equities.
“People are saying it’s a big number but markets are almost acting like its a disappointment,” said James Athey, investment director at Aberdeen Standard Investments.
“I think maybe the market was pricing an additional $2,000 cheque going to the US population, but what’s being proposed is a top-up of $1,400 to take the total to $2,000 because $600 has already been agreed.”
Investors also digested the prospect of rising taxes to pay for the plan.
“The concern is what it’s going to mean from a tax stand point,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“Spending is easy to do but the question is how are you going to pay for it? Markets often ignore politics but they don’t often ignore taxes.”
Biden’s comments came after US Federal Reserve Chair Jerome Powell struck a dovish tone in comments at a virtual symposium with Princeton University.
Powell said the US central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term.
Investor concerns over the prospects for a global economic recovery were raised after France strengthened its border controls and brought forward its night curfew by two hours to 6 p.m. for at least two weeks to try to slow the spread of infections.
German Chancellor Angela Merkel called for “very fast action” to counter the spread of variants of the coronavirus.
Chinese blue chips eased 0.2 percent, snapping a four-week winning streak, after the country on Friday reported the highest number of new COVID-19 cases in more than 10 months.
US earnings season kicked into full swing with results from JPMorgan, Citigroup and Wells Fargo.
JPMorgan Chase reported a much better-than-expected 42 percent jump in fourth-quarter profit on Friday, driven by the release of some of the reserves it had built up against coronavirus-driven loan losses.
Investors will be looking to see if banks are starting to take down credit reserves, resume buybacks, and provide guidance that shows the economy is improving, said Thomas Hayes, chairman of Great Hill Capital in New York.
In the currency market, the US dollar rose.
The dollar index was at 90.407 versus a basket of currencies, up 0.2 percent on the day.
It was on track for a weekly gain of around 0.4 percent, making this its strongest week since November.
Against the stronger dollar, the euro was down 0.2 percent at $1.21325.
US yields stepped back as risk appetite waned. Benchmark 10-year Treasury notes yielded 1.1039 percent, down from a US close of 1.129 percent on Thursday, while the 30-year yield dipped to 1.8451 percent from 1.874 percent.
In Europe, Italy’s bond market was poised to end the week calmer, as 10-year bond yields were down 2 basis points at 0.59 percent.
Italian Prime Minister Giuseppe Conte resisted calls to resign on Thursday after a junior coalition party led by former premier Matteo Renzi pulled out of the government on Wednesday and stripped it of its majority.