GCC Growth To Beat Global Expansion in 2023; Fixed Income Issuance Display Upbeat Potential: Kamco Invest

The growth in the Gulf Co-operation Council (GCC) in 2023 is expected to beat global economic expansion with project market slated to pick up from a slowdown over the last few quarters, thus supporting fixed income issuances in the region, according to Kamco Invest, a regional financial powerhouse.

"The GCC bonds and sukuk maturities are expected at $67.5bn for 2023 and the refinancing of these instruments are expected to account for the bulk of the issuances by corporates and governments in the region," Kamco said in its latest report.

That said, the higher cost of borrowing and strong profitability coupled with cash generation is expected to discourage some refinancing activity in the near term, it said.

"We expect fresh issuances to be back-end loaded once stability is seen in global interest rates and exchange rates. We expect corporate issuers to come back to market during the latter half of the year once market conditions seem favourable," the report said.

Highlighting that sovereigns in the GCC are expected to report fiscal surpluses due to elevated oil prices; Kamco said this is expected to limit overall issuances, although with diversification as a primary goal for most governments, "we can expect to see project-specific issuances during the year."

Moreover, sovereigns in the region still require funding in the medium- to long-term to meet their long-term strategic visions, it said, expecting overall fixed income issuance to remain flat in 2023 or show a small growth to range between $80bn and $85bn.

The report said the GCC governments are expected to see $199.3bn in fixed income maturities over the next five years (2023-2027), whereas corporate maturities stand slightly lower at $169.1bn.

Both bond and sukuk maturities are expected to remain elevated starting from 2023 until 2027 and then gradually taper for the rest of the tenor.

The higher maturities during the next five years reflects a number of short-term (less than five-year maturity) issuances in 2020 and 2021 as governments raised funds to plug-in deficits during the pandemic, according to Kamco.

A majority of these maturities are denominated in the US dollars at 59.7%, followed by local currency issuances in Saudi riyal and Qatari riyal at 17.2% and 7.7%, respectively.

Due to the credit rating profile of the GCC governments, a majority of these maturities are in the high investment grade or A-rated instruments.

In terms of type of instruments, conventional bonds dominate with $230.1bn in maturities over the next five years, whereas sukuk maturities are expected to be at $138.3bn.

In country split, Saudi Arabia has overtaken the UAE in terms of biggest maturities over the next five years. Saudi Arabia is expected to see maturities of $125bn until 2027, followed by the UAE and Qatari issuers at $109.8bn and $73.1bn respectively.

Banks and other financial services sector have $118.4bn in maturities in the next five years, accounting for around 70% of the total corporate maturities and 32.1% of the total maturities in the GCC until 2027.

The energy sector was next with maturities of $19.6bn or 11.6% of the GCC corporate maturities until 2027, followed by utilities and consumer discretionary at $10.7bn and $6bn, respectively.

Banks in the UAE have the biggest maturities over the next five years at $49.7bn, followed by those in Qatar with maturities of $27bn. Banks in the two countries accounted for 20.8% of total bond/sukuk maturities over the next five years in the GCC.