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19 March 2024

‘Robust demand’ for Gulf issues

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By Staff

Growth in Sukuk issue volumes in the Gulf’s capital markets in 2014 will likely be steady versus the 2013 rate although low yields could ultimately push up issuance, said Standard & Poor’s Ratings Services.

“We see the capital market issues in the region so far this year as evidence of robust demand. Low interest rates, generally positive economic fundamentals, the implementation of regulation to support capital markets, mounting demand for Islamic finance, and the continued need for infrastructure investment in Gulf Cooperation Council (GCC) countries should fuel capital market growth. Corporate and project finance entities will remain innovative in their funding solutions," said Karim Nassif, credit analyst at Standard & Poor's.

“This was demonstrated by landmark issuances in the infrastructure space last year, such as those of Ruwais Power Company and Sadara Chemical Company, as well as Majid Al Futtaim's perpetual hybrid securities.

“Strong investor demand has allowed issuers to tap markets at record low coupon rates and extend debt maturity profiles. This has helped improve their financial credit profiles,” added S&P credit analyst Tommy Trask.

S&P forecasts 5 per cent GDP growth on average in the Gulf in 2014 on sustained high oil prices.

“Moreover, we believe issue volumes in GCC capital markets are likely to stay stable or strengthen slightly this year, depending largely on interest rate developments. We also see mounting demand for Sukuk issuance, with some governments aiming to establish Islamic finance hubs. That said, we believe the major risks continue to be an escalation in regional political instability or an unexpected drop in oil prices,” S&P analysts noted.