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Gulf countries defy global gloom with bond sale plans

GCC foreign ministers at a meeting in Riyadh in June 2021 Saudi Press Agency/Handout via Reuters
GCC foreign ministers at a meeting in Riyadh in June 2021. All six member states are expected to post a surplus this year, cooling demand for borrowing
  • Saudi Arabia, Mubadala and Emirates NBD are all preparing sales
  • Gulf sovereign bond issuances have fallen this year, as oil prices soar
  • Sukuk issuance in H1 2022 was $74.5bn, down from $93.3bn

Saudi Arabia and an Abu Dhabi sovereign fund are among the Gulf entities to unveil plans to sell bonds and sukuk this week, shrugging off the gloom in global debt markets. 

Soaring oil and gas revenues have caused Gulf sovereign bond issuances to plunge this year, as governments have little need for further borrowing.

All six GCC countries are likely to post surpluses in 2022, some for the first time in several years, after Brent crude hit a 10-year high in May and natural gas prices reached a 14-year peak in August. 

Market volatility has also deterred would-be issuers, with US interest rate rises increasing borrowing costs and roiling debt markets. Many experts have described 2022 as the worst year for bonds in decades. 

Yet Gulf entities have returned to the market in October. Saudi Arabia plans to issue new dollar bonds and sukuk, and has offered them to owners of prior notes, according to regulatory filings to the London Stock Exchange on Tuesday. 

The six-year sukuk comes with initial price guidance of around 135 basis points (bps) over US Treasuries, while the 10-year conventional bonds will be about 180 bps over the same benchmark, Reuters reported, citing a bank document. 

Saudi has offered the new debt to holders of various existing notes totalling $15.5 billion and that mature from 2023 to 2026. Final pricing will be announced on October 25. 

These instruments follow Saudi’s Public Investment Fund sale of $3bn of green bonds in its debut issuance this month. 

Abu Dhabi sovereign fund Mubadala, which has $284bn of assets under management, is selling 10.5-year dollar, dual-listed Formosa bonds at an initial price guidance of 200 bps over 10-year US Treasuries.

Formosa bonds are sold in Taiwan by foreign borrowers and are denominated in currencies other than the Taiwanese dollar.

Reuters reported that Emirates NBD will issue $500 million in five-year green bonds on Tuesday, citing bank documents relating to the sale. Initial price guidance is for about 175 bps over US Treasuries. 

Sukuk issuance in the first half of 2022 was $74.5bn, down from $93.3bn a year earlier and the lowest first-half total since at least 2019, according to a report by S&P Global. It attributed the decline to shrinking global liquidity, complex regulations and reduced borrowing needs among some Islamic nations. 

Bond prices and interest rates are inversely correlated because bonds pay a fixed interest rate, so lower interest rates make bonds more attractive and vice versa. Central banks and regulators in the US and Europe have hiked rates to try to tame soaring inflation. 

The ICE BofA index that tracks 7 to 10-year US Treasuries, which are the instruments against which other bonds are priced, is down 20.4 percent this year. 
The JP Morgan Emerging Markets Bond exchange-traded fund is trading around 13-year lows and is down 28.3 percent in 2022.