GCC bond issues support corporate bond market: Fitch

Saudi Arabia, Abu Dhabi and Qatar’s international bond issues will create a pricing benchmark and will help support the growth of the region’s capital markets, Fitch Ratings said.

“The lack of a sovereign yield curve has been one of several factors holding back corporate bond issuance in the region. But these dynamics are starting to change, and corporate issuance should gradually start to take off in 2017,’’ Fitch said on Tuesday.

Saudi Arabia, Abu Dhabi and Qatar issued $17.5 billion, $ 5 billion, and $ 9 billion bonds, respectively.

Fitch expected oil prices to recover to around $65 per barrel, prompting more sovereign issuance from the Gulf countries.  The yield on sovereign debt creates a pricing benchmark in the region.

Traditionally, bank financing has been the preferred options for corporations. But a liquidity crunch because of low oil prices could force corporations to look for other options.

“We believe GCC corporates are more likely to issue sukuk than bonds (or a mixture of both rather than only bonds) in order to attract a wider local and regional investor base including Islamic investors,’’ Fitch said. “ In addition, some corporates are limited to only sharia-compliant borrowing by their own rules or by their desire to be included in Islamic investment funds and indexes.”