Bond issuance in the six Gulf Cooperation Council (GCC) states has more than quadrupled so far this year as high oil prices, massive liquidity and booming economies have sent issues soaring. The relatively new Sukuks (Islamic bonds) have played a key part in the rapidly expanding Gulf bond market, rising by a factor of 10 this year and accounting for almost one-third of the total issuance.
According to a report by the Middle East Economic Digest (MEED), Gulf bond issuance excluding sovereign debt has jumped to $4.67bn in the first eight months of this year, compared with a total of $876m for the whole of last year. Sukuks now make up 32% of the total at $1.29bn, up from 14%, or $122m for all of last year.
International law firm Trowers & Hamlins says that the increase in the oil price has been one of the key drivers of demand for debt from the Gulf region. This has increased liquidity generally and in state-owned pension and reserve funds such as the State Government Reserve Fund of Oman. It has also boosted confidence among foreign investors about the ability of the regional economy to enable borrowers to service their debt.
Andrew Rae, a partner at Trowers & Hamlins, said: “Foreign investors are becoming a bigger percentage of this market. They have become more knowledgeable and discerning regarding country-to-country differences within the region. Foreign investors are looking at corporate issuers, not just sovereign debt, and are increasingly comfortable with the fastest-growing area of bonds – Sharia-compliant Sukuks.”
Jawad Ali, a senior associate at international law firm King & Spalding, acknowledges the huge growth in Sukuk. “There is a lot of appetite for Sukuks in the Gulf region – in fact we have structured a $100m eurosukuk issuance that was arranged by Liquidity Management Centre in Bahrain. We expect that LMC and others will continue to structure various types of Sukuk to satisfy growing investor appetite.”
