GCC debt capital market (DCM) issuances should continue to rise through 2024 and 2025 and are steadily approaching $1 trillion outstanding, but with fragmentation across the bloc, says Fitch Ratings in a new report. 

 

The rise is expected to be slower than in Q1 2024. Government issuances will be driven by expected lower oil prices and interest rates as well as initiatives to develop the DCMs and further diversify funding channels. 

 

Four out of six GCC sovereigns are investment-grade and all are on Stable Outlook. Fitch upgraded Saudi Arabia, Qatar and Oman over the past 15 months.

 

Saudi to deepen DCM

Saudi Arabia is aiming to deepen its DCM, with issuance driven by budget deficits. Fitch Ratings expects UAE issuance to continue in spite of surpluses, whilst Qatar’s and Oman’s DCMs are contracting, and these governments will further repay debt in 2024. The debt law absence limits Kuwait’s funding options. Bahrain is dependent on DCM access and GCC funding amid wide deficits.

 

“Most GCC countries have come a long way in developing their DCMs, with the bloc now accounting for almost a third of total emerging-market dollar issuance, excluding China,” said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch Ratings. 

 

“However, the DCMs are in different stages of maturity, and less established than more developed regions. The corporate funding culture is geared towards bank loans, and banks are reliant on deposit funding. More diverse and wider issuer and investor participation would support development.”

 

GCC DCM grows 7pc yoy

The GCC DCM has grown 7% yoy, reaching $940 billion outstanding at end-Q1 2024, with the largest shares in Saudi Arabia (43%) and the UAE (30%). Nearly 40% of GCC DCM outstanding was sukuk at end-Q1 2024, with the rest in bonds. 

 

Fitch rates over 70% of GCC US dollar sukuk ($104.3 billion; 81% investment-grade). Sukuk faces limited standardisation and sharia complexities.--TradeArabia News Service