Bloomberg
Dubai

Unless Gulf bond sales pick up in the fourth quarter, the market will shrink this year for the first time in a decade. And the prospects aren’t looking good.
Issuance from the six-nation Gulf Cooperation Council dropped 31% to $20.4bn this year through September 30, while $23.5bn of securities are due to mature in 2015, according to data compiled by Bloomberg. Redemptions haven’t exceeded sales since at least 2005, the data show. The lack of sales may continue into the fourth quarter, National Bank of Abu Dhabi, the UAE’s biggest bank, said in a note on September 28.
A contraction would cap a year in which GCC debt investors have been starved of options as borrowers turned to loans and markets whipsawed amid China’s faltering economic performance and speculation the Federal Reserve will raise interest rates. The slowdown has weighed on the global Islamic industry, where sukuk from the region typically account for third of all issues.
“It was a relatively small market to begin with and it was just starting to gain some momentum in the last couple of years,” said Abdul K Hussain, the chief executive officer at Mashreq Capital DIFC Ltd, which runs the best-performing Islamic fixed-income fund in the Middle East and North Africa. “It also makes things relatively stale and illiquid so that if you do get selling, you get price movements that are more exacerbated than they otherwise would be.”
Regional sales peaked at $43.6bn in 2012 and have averaged $36.2bn in the six years to 2014. Maturities averaged $14.1bn annually over the period, before peaking this year.
A rebound remains possible. GCC bond issuance in the fourth quarter has averaged $12.4bn in the six years through 2014, though last year it dropped 63% to $4.1bn.
The prospect of a slowing Chinese economy has hit sentiment across emerging markets. In the Middle East the average yield on bonds rose 19 basis points this quarter, after jumping 28 basis points in the previous three months, according to JPMorgan Chase & Co Indexes. It was at 4.7% on September 29, the highest since 2013.
“The uncertainty globally over US interest-rate policy and negative China macroeconomic data has affected risk appetite and issuance” this year, Ali Soner Guney, a fixed-income fund manager at National Bank of Abu Dhabi, said on September 28. “Issuance will improve once there is better visibility about these because there are repayment requirements coming due.”