The GCC debt capital markets staged a broad-based recovery in the second quarter of the year after a disappointing beginning to the year, NCB Capita reported on Monday. The conventional bond market saw the aggregate value of primary issuances increase by 33 per ent over the last quarter, while the number of issuances more than doubled. The primary Sukuk market also picked up, lead by sovereign issuances, and reached a total value of $3.4 billion, a significant rise over the same period last year. However, against this positive backdrop, the markets face a period of uncertainty in the wake of the European debt crisis. Dr Jarmo Kotilaine, chief economist of NCB Capital, said “government issuances emerged as a key market driver. Out of the eight GCC Sukuk issued during the last quarter, seven were sovereign issues from Bahrain and Qatar. The progress made in restructuring troubled Sukuk also boosted sentiment in the Shariah-compliant market segment.” Some regional governments have played a very active role in deliberately putting in place the building blocks of a debt capital market. This quarter saw continued progress in the efforts by Qatar to proceed with its program of developing domestic debt capital markets and plans are underway for a secondary market on the country's stock exchange. Sovereign Sukuk issuance totaled $1.5 billion during the quarter, whereas activity proved much more lackluster in the corporate Sukuk space with the notable exception of a landmark issue by Saudi Electricity Company. Very encouragingly, the tenors of GCC Sukuk are beginning to edge from the previous norm of five years which many considered too short. The near-term outlook for the GCC debt capital markets remains cloudy amidst an uncertain global economic environment and rising domestic inflationary pressures. The bank believes that GCC debt markets face a period of uncertainty due to mounting global economic risks in the wake of the European sovereign debt crisis and signs of renewed weakness in the US. In the Gulf region, rising inflation threatens to push up yield expectations, thereby causing a number of issuers to postpone their plans. Nonetheless, the growing need for long-term financing coupled with low interest rates should continue to support the market. “Even as global economic uncertainties will inevitably persist, the steady progress of corporate restructuring in the region has boosted confidence. Planned capital expenditure and infrastructure investments are likely to drive the GCC debt market in the coming quarters. At the same time, companies are showing signs of seeking even more short-term alternatives to bank finance, which is recovering only slowly,” Kotilaine added.
