The amount of debt issued by non-financial corporate entities in the Gulf Cooperation Council (GCC) virtually doubled last year as governments either sold stakes in related entities, or encouraged them to diversify funding sources, ratings agency Moody’s said.
In a press briefing held on Tuesday, senior analyst Rehan Akbar said that the ongoing fiscal deficits being run by most GCC countries “is linked to certain policies that over time” are impacting on corporate credit trends.
“The first is the trend towards monetisation of state-owned assets, be it through IPOs, partial sales to strategic partners or even sales from one government entity to another,” Akbar said. “All of these different transactions are leading – and will over time lead – to some sort of capital market issuances.”
The value of conventional and Islamic bonds (sukuk) issued by non-financial corporate entities rated by Moody’s in the region increased to $15.6 billion in 2018 – an 86 percent increase on the $8.4 billion issued in 2017.
Approximately $1.8 billion of the 2018 issuance was from entities tapping debt capital markets for the first time. These included Abu Dhabi real estate firm Aldar Investment Properties and district cooling firm Tabreed – each of which raised $500m through seven-year sukuk. Abu Dhabi’s industrial holding conglomerate Senaat also raised $300 million through a seven-year sukuk in November, which is part of a $3 billion trust certificate issuance programme that the company can tap in the future, if required.
“Governments are convincing state-owned enterprises, where it makes sense for them, to diversify funding sources and access capital markets,” Akbar said. “The governments also want to wean off some of these enterprises from government funding. That will encourage them to go and access the debt markets.”
Akbar also said that in some instances where state-owned firms embark on joint ventures or partnerships with private sector enterprises, “we tend to see a change in the capital structure.”
“They tend to be more commercially-driven, and that could lead to some more long-term funding,” he said. “These are trends that will take time but are certainly influencing some of these new issuances that are coming up.”
Speaking at the Global Financial Forum event in Dubai on Monday, Naveed Kamal, Middle East and North Africa head of corporate banking at Citi, said that the oil-producing countries in the MENA region have not just been borrowing more via sovereign debt capital market issuance, but “monetising some assets, bringing in international partners to partner with them strategically on certain assets and in turn invest(ing) in those partner countries and create an anchor base for their exports going forwards.”