With nominal interest rates remaining at historically low levels, investors have scoured the world looking for higher yields. This demand has allowed many bond issuers to borrow at ever lower costs. Banks in the Gulf Cooperation Council (GCC) were able to capitalize on this last year, and their issuance volumes were substantially higher than in 2011. Standard & Poor’s Ratings Services expects Gulf banks’ issuance levels to remain high this year, given the interest from institutional investors, the banks’ rapid growth, and the supportive environment for issuing long-term debt instruments at low cost.
We noted a sharp rebound in Gulf banks’ activity in debt capital markets in 2012 as they took the opportunity to issue long-term debt at healthy prices under the favorable market conditions. The sukuk segment is becoming more active as conventional banks are increasingly tapping into sharia-compliant products to diversify their funding bases. Sukuk are financial certificates with features similar to those of bonds, which comply with Islamic law (sharia). Last year, we also saw the issuance of hybrid sukuk such as Tier 2 structures and the first Tier 1 sukuk issuance by a Gulf bank.
In view of supportive debt capital market conditions, we forecast banks’ issuance levels to remain elevated in 2013. We expect most of the impetus to come from banks in the United Arab Emirates (UAE), the largest issuers in 2012, and Qatar, where issuance has been steadily increasing.
Standard and Poor’s