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21 February 2024

UAE to lead GCC debt issuance

By Staff

The UAE banks are expected to lead the Gulf for debt issuance this year, international ratings agency Standard & Poor’s said today.

“Banks in the UAE remained the largest issuers last year, and we forecast robust issuance levels again in 2013 as banks continue efforts to optimize their funding costs,” S&P analysts said in a report

S&P expects most of the impetus to come from banks in the UAE, the largest issuers in 2012, and Qatar, where issuance has been steadily increasing.

“More than 60 per cent of Gulf banks' issuance between 2007 and 2012 emanated from the UAE. The UAE has the largest banking system in the region, and the amount of debt UAE banks issued increased by 53 per cent in 2012 to reach $8 billion, or about 54 per cent of total issuance reported in the Gulf region. In Qatar, the level of bank issuances, albeit volatile, is rising alongside the country's high-paced credit growth, a trend we believe is here to stay,” analysts said.

Although we expect credit growth in the UAE to remain limited in 2013, as it did in 2012, we believe the level of issuances will remain strong, primarily because of banks' efforts to reduce funding costs by paying down higher-cost debt issued in 2008 and 2009. We also expect that banks will continue to use the debt capital markets, given the opportunity to secure long-term funds at low cost.”

Last year, banks in the Gulf Cooperation Council (GCC) were able to capitalize on investors' global search for higher yields, and their issuance volumes were substantially higher than in 2011.

"We noted a sharp rebound in Gulf banks' activity in debt capital markets in 2012 as they took the opportunity to issue long-term debt at healthy prices under the favorable market conditions," said Standard & Poor's credit analyst Timucin Engin.

"Given the interest from institutional investors, the banks' rapid growth, and the supportive environment for issuing long-term debt instruments at low cost, we think Gulf banks will have another busy issuance year."

As Gulf banks look to diversify their funding base, sukuk is becoming more important in the GCC's fixed-income market, representing almost half of Gulf banks' issuance in 2011 and 2012.

"Sukuk is becoming a key component of Gulf banks' funding bases," said Engin.

"About 50 per cent of banks' debt issued in 2011 and 45 per cent in 2012 was in the form of sukuk. Last year, banks issued $6.7 billion of sukuk, representing year-over-year growth of 136 per cent. More important, conventional banks are now increasingly participating in the sukuk market as a means of diversifying their funding bases with longer-term instruments. The demand for sharia-compliant products is rising, both regionally and internationally."