Increase in Dubai's bond issue boosts GCC debt market

An upsurge in Dubai's bond issue sharply boosted the debt market in Gulf oil producers in the fourth quarter of 2009 and it is poised for further recovery in 2010 as banks remain tight, said a Saudi investment company.

After a downturn in previous quarters because of the global fiscal crisis, the debt markets in the six-nation Gulf Co-operation Council (GCC) began to rebound in the third quarter of 2009 and extended their recovery in the last quarter, led mainly by conventional issuance by UAE and Qatari sovereigns, said NCB Capital, an affiliate of the Saudi National Commercial Bank.

New bond and sukuk issues of $36.4 billion effectively doubled the figure for the year as a whole to over $73.2bn, the report said.

The positive momentum has been supported by improving economic conditions and an asset price recovery, the report said in its weekly bulletin.

Its figures showed new conventional bond issuance of $33.2bn during the fourth quarter of 2009 surpassed the $32bn issued during the three preceding quarters in total. By contrast, the sukuk market remained lackluster during the fourth quarter, led by declines in Saudi Arabia and Bahrain.

The region as a whole experienced a 4.3 per cent fall in overall sukuk issuance during 2009. Nonetheless, improving economic conditions coupled with an increase in financing requirements in areas such as infrastructure are expected to revive the sukuk market in the coming year, according to the bulletin.

"The Government of Dubai was the leading GCC issuer during the fourth quarter of last year. In November, the Dubai Department of Finance (DoF), placed $5bn as part of its $20bn long-term bond program launched at the beginning of 2009. The programme is managed by the Dubai Financial Support Fund (DFSF), which was set up with the specific purpose of providing liquidity to government and government-related entities," it said.

It said the $5bn tranche was taken up jointly by the National Bank of Abu Dhabi – in the form of conventional bonds – and by Al Hilal Bank by way of a $2.5bn sukuk. Dubai Government further issued a two-tranche, $1.93bn sukuk at end of October and the issue was over-subscribed by 3.3 times.

As for Islamic bonds (sukuk), the report showed that after robust growth in the second and third quarters of 2009, the global sukuk issuance fell by around 8.7 per cent to $8.1bn during the fourth quarter.

However on an annualised basis, the total was still significantly ahead of the $949 million issued in the corresponding quarter of the previous year, it said.

According to NCB Capital, the largest sukuk issuance in the fourth quarter came from the UAE – Dubai's $1.3bn 20-year sukuk.

Moreover, Abu Dhabi's Tourism Development and Investment Company (TDIC) placed a sukuk to raise $1bn in October.

The report showed the GCC's share in global sukuk issuance declined marginally from 41 per cent in the third quarter to 39.6 per cent in the fourth quarter.

It said that government participation in sukuk issuance continued to increase to mark what it described as a pronounced change in the nature of sukuk issuances.

On an annual basis, the total share of government sukuk in the GCC increased to 91 per cent from 65 per cent in 2008, it said.

During the fourth quarter of last year, around 94 per cent of the total sukuk issuance in the GCC came from government or government-linked entities.

This marked a near-doubling from some 50 per cent in the third quarter.

"The GCC debt market (both bonds and sukuk) offers considerable potential in 2010 as the economies look set to recover from the current downturn and corporates are eager to raise new capital. Although a lack of liquidity and transparency remain key challenges for the regional debt capital markets, we believe that the prospects for 2010 look favourable as bank lending remains constrained and the IPO market has yet to recover," NCB Capital said.

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