Dubai: Bolstered by Saudi Arabia’s $12.4 billion (Dh45.54 billion) international Islamic bond in September, debt issuance in the Middle East reached $103.7 billion during 2017, 33 per cent more than the proceeds raised during last year and by far the best year in the region since 1980, according to full year data from Thomson Reuters.

Saudi Arabia was the most active nation in the Middle East, accounting for 30 per cent of activity by value, followed by the UAE with 27.8 per cent. Fixed-income issuances in the GCC in 2017 saw one of the biggest jumps since the financial crisis with growth recorded in both bonds and sukuk markets. It was a record year for the GCC countries as sustained low oil prices, coupled with rising budget pressure at home as well as infrastructure spending requirements triggered some of the biggest issuances in the region.

“Ongoing trends also indicate a healthy pipeline of issuances in the near term. In addition, central banks in the region are also under pressure to raise interest rates due to rising interest rates in the US and the pressure to keep currency pegs within a manageable limit. This has also forced some issuers in the region to lock in favourable rates before the interest rates are raised,” said Faisal Hassan, head of Investment Research.

In terms of individual country share, Saudi Arabia continued to account for the lion’s share of total fixed-income market issuances that reached a record level of $40.6 billion, as against around $20 billion during 2016. The increase was primarily in terms of sukuk issuances that reached $28.1 billion during the year as against merely $1.7 billion during 2016.

Analysts expect huge demand for funding — particularly in the projects and infrastructure front — to boost issuance this year. On the economic front, the GCC continues to boast one of the biggest project markets in the region, with almost $3.1 trillion worth of projects in pipeline, according to MEED.

This is more than $300 billion, or 11.6 per cent, more than the project pipeline at the end of 2016, requiring additional funding requirements and thereby increasing the possibility of higher issuances in the fixed-income market in the near term.

“With banks becoming more stringent in their lending process amid liquidity constraints, corporates are increasingly looking at the fixed-income market and are actively tapping in record deals. In terms of quality of issuers, most of the Mena [Middle East & North Africa] oil exporters have adequate credit quality enabling them to comfortably raise debt in the international market. This is particularly the case with the GCC countries with most of the larger economies continuing to boast investment grade ratings despite several downgrades by rating agencies since the start of the oil price decline,” Junaid Ansari, assistant vice-president of Kamco said in a note

For 2018, Kamco Research expects fixed-income market issuances to be led by Saudi Arabia followed by Qatar, Oman and Bahrain as these countries look at ways to finance their respective investment plans and plug budget deficits. Government-related entities (GREs) are increasingly tapping the international bond markets and this new trend is expected to see noticeable growth in 2018.

Total bond issuance by GCC countries stood at $81.2 billion, up 11.6 per cent or $8.4 billion as compared to $72.8 billion in 2016. The UAE saw the biggest increase in 2017, with bond issuances totalling $33.3 billion as compared to $19.1 billion during 2016.

Issuances by Kuwait also more than doubled to $16.8 billion, as compared to $7.2 billion during 2016.

Saudi Arabia, however, witnessed a decline from 2016, with issuances totalling $12.5 billion in 2017 as compared to $18 billion in 2016 as the kingdom issued more sukuks as compared to bonds in 2017. Qatar, which was the second-largest bond issuer in 2016, witnessed a steep decline in 2017 with issuances totalling $6.8 billion as compared to $18.7 billion in 2016.

Rating agency Standard & Poor’s estimates infrastructure spending of around $20-150 billion in the GCC until 2019 that would require funding, and most preferably through bonds and sukuks due to liquidity pressure on regional banks.

Additionally, GCC also faces refinancing needs of $23.6 billion in corporate capital market debt due between 2017 and 2019 that could come under pressure of refinancing risk given the ongoing geopolitical uncertainties in the region and hence making bonds and sukuks as the preferred choice of funding infrastructure projects.