In my last article for Gulf Times, we examined the expansion of Qatar’s equity market as an integral part of the government’s strategy of strengthening the private sector, facilitated by the creation of a stock exchange. While the equity market has been relatively quiet in recent years in terms of new listings on the Qatar Stock Exchange, fundraising via the debt market by comparison has been very active.
Sovereign bonds have been grabbing the headlines this year, with Qatar’s $9bn bond in May being followed by three domestic government bond sales of $825mn in August, $549mn in September and $412mn in October. With a budget deficit due to falling oil and gas revenues, the QCB has been taking advantage of low borrowing costs to replenish funds by turning to institutional investors and the international debt market.
A similar story can be seen across the hydrocarbon dependent GCC, and Saudi Arabia’s huge $17.5bn bond sale in October marks the biggest ever from an emerging-market nation, with $5bn also raised by Abu Dhabi in April and $3bn by Oman in June. Sovereign bonds are an important instrument to fund projects and part of the QCB’s strategy to manage liquidity, ensuring stable interest rates and encouraging adequate provision of credit to the private sector. Through ensuring monetary and financial stability, sovereign bonds are successfully supporting sustainable economic growth in Qatar.
While sovereign issuances have been very large indeed in 2016, corporate bonds still form a large chunk of the GCC bond market. Bonds are associated with a number of benefits and expand the range of financing opportunities for the private sector, offering an alternative to relying on bank loans and helping savings to be used domestically. Historically, corporate bonds have been used in Qatar to finance mega projects. Qatar’s Ras Laffan Liquefied Natural Gas Company was eight times oversubscribed for its $2.23bn bond to pay for the final part of the work on its LNG trains and Dolphin Energy launched a $1bn bond to part-fund the total cost of its 3.5bn project to supply Qatari gas to the UAE and Oman via an undersea pipeline.
The huge size of these projects in Qatar makes it imperative for their sponsors to be able to access as many sources of funding as possible and bond financing has the advantage of being offered at longer-term finance than banks. More recently, we have seen several Qatari corporates turning to the bond market in 2016 in order to fund growth, diversify sources of funding and in the case of Qatari banks, prepare for new Basel III banking rules which oblige banks to set aside more capital. In June, Ooredoo and Commercial Bank successfully issued a $500mn and $750mn bond respectively. In April, Ahlibank completed its first debt fundraising with a $500mn bond and in February Al Khaliji’s shareholders’ approved to issue up to $549.2mn of bonds to boost its core capital.
Islamic bonds or sukuks deserve a special mention as their popularity has dramatically grown, as has Shariah finance globally. The first-ever Qatari corporate sukuk was issued in 2006, by Qatar Real Estate Investment Company (Alaqaria) and the GCC has become a centre of sukuk issuance, taking a bigger and bigger share of the global market each year. The now widespread use of sukuks is contributing to the growth and development of an Islamic capital market and they provide a new source of funds especially for infrastructure and real estate projects, as sukuks lend themselves well to investments in the real estate because they are asset based. Sukuks, as with other types of bonds, have been successfully used in Qatar by corporates to raise funds and can be seen as paramount for the success of economic diversification by financing private sector growth.