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GCC economies set for rate-cut boost

Saudi Arabia continues to see the biggest maturities during 2024-2028

The impact on GCC economies due to the impending rates cuts by global central banks in 2024 is expected to be largely positive, a report said.

According to Kamco Invest’s GCC Fixed Income Market Update for December 2023, this will happen “as global economic slowdown in now expected to be softer-than-expected, with soft landing in economic growth. This coupled with lower inflation rates in the GCC should augur well for the region in terms of GDP growth backed by thriving non-oil GDP, a strong project pipeline and elevated oil price,” the report, written by Junaid Ansari, Kamco Invest's Head of Investment Strategy & Research, said. In addition, the strong credit profile of most countries in the GCC with recent upgrades this year also provides stability to currency and the fixed income funding market, it added.

In the primary market, GCC bonds and sukuk issuances exceeded market expectations with several big-ticket issuances during the second half of the year. Sukuk issuances in Saudi Arabia coupled with bond issuances in the UAE during the second half of 2023 and pushed aggregate issuances in the GCC to over $100 billion at $107.8 billion by mid-December-2023. “This compares with $90.0 billion in total bond and sukuk issuances in the GCC during full year 2022,” the report said.

GCC governments are expected to see elevated levels of maturities in their bonds over the next five years, the report showed.

According to data from Bloomberg, GCC sovereign maturities stands at $209.3 billion over the next five years (2024-2028), whereas corporate maturities stand significantly lower at $177.9 billion . “Both bond and sukuk maturities are expected to remain elevated starting from 2024 until 2028 and then gradually taper for the rest of the tenor,” the report said. The higher maturities during the next five years reflects a number of short-term (less than five-year maturity) issuances in 2020 and 2021 as governments raised funds to plug in deficits during the pandemic. “A majority of these maturities are denominated in US dollars at 59.7 per cent followed by local currency issuances in Saudi riyals and Qatari riyals at 16.3 per cent and 7.6 per cent, respectively. In addition, due to the credit rating profile of the GCC governments, a majority of these maturities are in the high investment grade or A rated instruments,” the report said.

In terms of type of instruments, conventional bonds dominate with $244.3 billion in maturities over the next five years, whereas sukuk maturities are expected to be at $142.9 billion . In terms of country split, Saudi Arabia continues to see the biggest maturities during 2024-2028. The Kingdom is expected to see maturities of $131.9 billion until 2028 followed by UAE and Qatari issuers at $122.5 billion and $71.4 billion, respectively. Kuwait has the smallest maturities in five years at $14.1 billion due to lack of government issuances.

In terms of sector maturities, banks and other financial services sector have $130.9 billion in maturities in the next five years, accounting for around 73.6 per cent of the total corporate maturities and 33.8 per cent of the total maturities in the GCC until 2028, respectively. The energy sector was next with maturities of $17.9 billion or 10.0 per cent of GCC corporate maturities until 2028 followed by utilities and communications at $11.4 billion and $6.1 billion , respectively. Banks in UAE have the biggest maturities over the next five years at $60.2 billion followed by Qatari banks with maturities of $26.3 billion . Banks in the two countries accounted for 22.3 per cent of total bond/sukuk maturities over the next five years in the GCC. Real Estate maturities are concentrated mainly in the UAE and Saudi Arabia at $6.3 billion and $2.9 billion , respectively, until 2028. The structure of maturities saw perpetual instruments seeing consistent growth until 2022. However, 2023 witnessed a steep decline in issuances of perpetual instruments. According to data from Bloomberg, aggregate issuances declined from $11.5 billion in 2023 to merely $2.0 billion during 2023.