Gulf Cooperation Council countries may struggle to refinance $94bn of debt in the next two years as the region faces slowing growth, rising rates and rating downgrades, according to HSBC Holdings.
Oil-rich GCC states have to refinance $52bn of bonds and $42bn of syndicated loans, mostly in the UAE and Qatar, HSBC said in an e-mailed report. The countries also face a fiscal and current account deficit of $395bn over the period, it said.
Expectations that these funding gaps “will be part financed through the sale of sovereign US dollar debt will complicate efforts to refinance existing paper that matures over 2016 and 2017,” Simon Williams, HSBC’s chief economist for the Middle East, said in the report. “With the Gulf acting as a single credit market, the refinancing challenge will likely be much more broadly felt” and “compounded by tightening regional liquidity, rising rates and recent downgrades,” he said.
GCC states, which collectively produce about a quarter of the world’s oil, are taking unprecedented measures to shore up their public finances as crude prices struggle to rebound from the lowest levels in 12 years. The countries, which include Saudi Arabia and Oman, have also been hit by a series of rating cuts, while billions of dollars have been drained from the region’s banking system.
Gulf countries have about $610bn outstanding in FX-denominated bonds and syndicated loans, HSBC said. This includes financial and corporate debt, as well as sovereign debt, mainly in the UAE, Bahrain and Qatar, it said.
HSBC is confident that the funding gaps will be covered and expects a “raft” of foreign sovereign bond issuance to fund budget deficits. Any new issuance will have to compete with upcoming refinancing needs, the bank said.
Almost half of the maturities due in the next two years are in the banking sector, HSBC said, “suggesting any increase in costs at refinancing could quickly feed through into a broader monetary tightening.”