*Qatar accounts for $10bn of the total $24bn GCC sovereign issuances; country issuances in three tranches with maturities ranging from five to 30 years
Qatar has topped the GCC sovereign issuances in the second quarter of 2020-to-date with $10bn of the total $24bn, a report by National Bank of Kuwait has shown.
Qatar issued $10bn in three tranches with maturities ranging from five to 30 years, NBK said in an economic update.
The final pricing yields for Qatar’s 10-year dollar-denominated bond was around 3.8%, reflecting higher spread over the respective US treasury yields, it said.
“The higher risk is also reflected in a broad and marked rise in GCC credit default swap rates, typically used by investors to hedge against default. Looking forward, we expect (Gulf Cooperation Council) issuances to be strong this year on high financing needs due to oil and coronavirus fiscal pressures,” NBK said.
According to the economic update, despite the extended government lockdowns in place since March due to the coronavirus, GCC issuance has been “relatively strong” so far this year.
“The issuances were successful and significantly oversubscribed (about $140bn in demand), suggesting that strong international demand for GCC sovereign debt is still strong,” NBK noted.
NBK noted the GCC sovereign yields were “mixed” as investors priced in varying country-specific risks from the impact of extended lockdowns and lower oil prices on fiscal positions. Governments deemed to be at a lower risk, ie those with stronger fiscal buffers, low debt-to-GDP ratios, solid credit ratings, and large reserves, saw continued demand, which kept their yields subdued.
The drop in yields in these countries was also in part due to multiple interest rate cuts, coupled with a continued strong demand for prime GCC sovereign debt in these turbulent and uncertain times, given the alternative of low and even negative yields in some of their global counterparts, NBK said.
Looking forward, NBK’s economic update said, the “movements in GCC yields will be influenced” by how long the pandemic persists, how soon oil prices recover, and whether or not economic recovery will be swift.
“Should GCC fiscal and external balances remain under pressure from low oil prices, extended lockdowns or an unsuccessful reopening of economies, yields could drift higher. In contrast, an improvement in economic conditions may lower risk and ramp up demand for regional paper, leading investors to accept lower yields (though a rapid recovery could also push global interest rates higher). It seems, however, that risks are skewed to the downside for the time being (rising yields), as uncertainty about oil and the pandemic is still high,” NBK said.
Through its $10bn bond in April, the State of Qatar (Aa3/AA-/AA-) reopened the capital markets for the region, post the recent global disruptions.
The transaction generated an aggregate order book peaking at approximately $45bn, “attracting strong interest” globally, with many investors from Asia, Europe, the US as well as the Middle East and North African region.
The demand generated by the deal is seen by many analysts as a sign of strong investor appetite despite a plunge in crude prices that pushed up borrowing costs for governments of the oil-producing region.
