RIYADH: Saudi Arabia became the top issuer in the Gulf Cooperation Council bond market during the first half of 2024, raising $37 billion through 44 issues, according to recent data.
The Markaz GCC Bonds and Sukuk Market Report said the figure represented a 12.5 percent increase over the same period last year, accounting for 49 percent of total new GCC bond and sukuk supply.
The total value of GCC primary issuance during the period reached $75.5 billion, up 38 percent from $54.8 billion in the first half of 2023, with the number rising to 173 from 130.
Saudi Arabia's Vision 2030 includes several mega-projects that require significant funding. While the kingdom's banks have traditionally relied on deposit growth as their primary source of funding, the scale of these projects exceeds their liquidity capabilities.
Consequently, these banks are expected to seek additional deposits and enter the international debt market to meet their funding needs. In addition, these projects receive significant support from the central government and related entities.
The public investment fund has announced plans to deploy $70 billion a year after 2025 and is considering its own fundraising initiatives.
Samer Jumean, partner and head of infrastructure at KPMG in Saudi Arabia, told Bloomberg in an interview that a huge scale of funding is needed, noting that while liquidity remains available, access to capital markets is cautious.
Despite these ambitious funding needs, Saudi Arabian banks' balance sheets are still considered healthy, with S&P Global Ratings assigning most key lenders an investment-grade rating and a stable outlook. However, they may not be able to carry the entire financial burden of Vision 2030 alone.
Debt issuance by geography
According to the Markaz report, the UAE followed Saudi Arabia in terms of value, raising $20.6 billion through 65 issues during the first half of 2024, compared with $15.4 billion from 58 issues in the same period last year. This represented 27 percent of the total value of GCC primary bonds and sukuk issues.
Qatari entities were the third largest issuers within the GCC at $10.5 billion, a 416 percent increase over the same period last year.
Bahraini institutions raised $3 billion through 4 issues, capturing 4 percent of the market, while Omani entities raised $1.7 billion, representing 2 percent of the total.
Kuwaiti issuers raised $2.6 billion through 15 offerings, up 791 percent from $300 million in the same period last year, also accounting for 4 percent of the market.
According to the report, 75 percent of GCC conventional and sukuk bond offerings in the first half of 2024 have been rated by major rating agencies, including S&P, Moody's, Fitch and Capital Intelligence.
That's down from 85 percent in the same period last year. Of these rated issues, 71 percent were classified as investment grade, highlighting the strong focus on high-quality debt despite an overall decline in the share of rated bonds.
This shift suggests evolving dynamics in the regional bond market with a slightly reduced emphasis on credit ratings but a continued preference for investment grade securities.
Sector Allocation
According to Markaz, the government sector led primary debt offerings by value in the first six months of this year, raising $41.5 billion, or 55 percent of total GCC issuance.
In July, Saudi Arabia expanded access to its local bond markets by appointing five new financial institutions – Albilad Investment Co., AlJazira Capital Co., Al Rajhi Capital Co., Derayah Financial Co. and Saudi Fransi Capital Co. – as primary distributors. government debt instruments.
These institutions join existing primary dealers including Saudi National Bank, Saudi Awwal Bank and AlJazira Bank, as well as Alinma Bank and AlRajhi Bank. The aim of this expansion is to diversify the investor base and increase opportunities to participate in the local debt market through additional distribution channels.
After the government sector, the financial segment, including quasi-government entities, received $28.8 billion, or 38 percent of total bids. Next came the utilities sector, which raised $2.9 billion through five issues, representing 4 percent of the market.
Sovereign versus corporate
The Markaz bond report highlighted a significant shift towards sovereign bond issuance in the GCC for 2024. Total primary sovereign bond issuance rose 77 percent to US$41.5 billion in the first half of the year, compared to US$23.4 billion in the same period of the year 2023.
Saudi Arabia led this increase in $5 billion worth of sukuk issuance, the largest sovereign issuance in the GCC. In contrast, Kuwait did not participate in the issuance of government bonds during this period.
Corporate bond issuance in the GCC also saw growth, rising 8 percent to $34 billion in the first half of 2024, up from $31.4 billion a year earlier. Government-related entities accounted for $9.1 billion, or 22 percent of total corporate debt issued.
The UAE emerged as the top issuer with US$12.8bn of corporate debt, while Saudi Arabia's PIF grabbed the headlines with its US$1.8bn issue, the largest corporate bond offering in the GCC during the period.
Conventional versus sukuk
In the first six months of 2024, Saudi Arabia led the regional sukuk market with issuance of $5 billion, contributing significantly to the overall increase in sukuk across the GCC.
Sukuku volumes increased by 14 percent year-on-year in 2023, totaling $26.6 billion through 31 issues.
In contrast, conventional bond issuance rose to $48.8 billion, a 56 percent increase from the first half of 2023, with the Saudi government also leading the category with $4.8 billion on offer.
S&P Global Ratings forecasts a stable global sukuk issuance forecast of $160 billion to $170 billion per year, reflecting strong initial performance in 2024.
Global sukuk issuance reached $91.9 billion in the first six months, up slightly from $91.3 billion a year earlier. Notably, foreign currency sukuk rose 23.8 percent to reach $32.7 billion, driven mainly by issuers from Saudi Arabia, the United Arab Emirates and Oman, as well as Malaysia and Kuwait.
