Mena commercial borrowing to hit $56bn
Dubai, March 3, 2014
The 12 rated sovereigns in the Mena region - Abu Dhabi, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Ras Al Khaimah, Saudi Arabia and Sharjah - would borrow an equivalent of $56 billion from long-term commercial sources in 2014, said a report.
This would be a 27 per cent increase in long-term commercial debt issuance compared with 2013, stated Standard & Poor's Ratings Services in its outlook.
Of this, about 67 per cent, or $38 billion of the sovereigns' gross commercial borrowing will be to refinance maturing long-term commercial debt, compared with $25 billion in 2013, resulting in an estimated net commercial borrowing of $18 billion, the report added.
As per S&P projections, the commercial debt stock of these 12 sovereigns is poised to hit $462 billion by the end of 2014, up four per cent over last year.
Adding in bilateral and multilateral debt, the total stock will reach $504 billion, posting a year-on-year increase of $15 billion, or three per cent, the report added.
"We expect that outstanding short-term commercial debt will reach $145 billion at year-end 2014. The share of noncommercial official debt (bilateral and multilateral) in total sovereign debt is set to fall to 8.7 per cent of total debt as of year-end 2014, from 9.5 per cent in 2013," it stated.
"We forecast a $12 billion, or 27 per cent increase, in rated Mena sovereign long-term borrowing from commercial sources in 2014, compared with actual borrowing in 2013," the ratings agency said.
According to S&P, Egypt, Morocco and Lebanon would be the biggest issuers this year, while sovereign capital market activity in the GCC was likely to remain muted.
In general, sovereign debt capital markets are relatively underdeveloped in the GCC and we do not expect Abu Dhabi, Kuwait, Qatar, or Saudi Arabia to issue long-term debt in 2014, the ratings agency stated.
"In our view, financing these states' large investment programs could result in weaker government balances, but as long as oil prices remain high, we expect them to continue to post fiscal surpluses. We expect the majority of borrowing related to these investment programs to take place at the government-related entity level rather than through central government borrowing," it added.
However, we do expect that the smaller GCC states of Oman and Bahrain, along with the smaller emirates of Ras Al Khaimah and Sharjah, will issue commercial debt in the market.
S&P pointed out that Ras Al Khaimah had issued a $500 million bond under its $2 billion sukuk issuance program (RAK Capital) in 2013.
We expect that it will issue again in 2014 in order to refinance about $0.4 billion in debt coming due rather than running down its cash balances. We also expect Sharjah will issue around $0.5 billion this year as it continues to invest in capital projects.
"We have also penciled in an inaugural issuance of treasury bills by Abu Dhabi in 2014, expecting around $1 billion in total. Nevertheless, given its low sovereign debt stock, Abu Dhabi's roll-over rate as a percentage of GDP remains very low at below 1 per cent," it stated.
According to S&P, the absolute debt levels continue to increase in the Mena region.
"By year-end 2014, we project that total outstanding sovereign commercial debt in the Mena region will have risen by $17 billion to $462 billion in nominal terms since last year," it noted.
We project that during 2014 the share of commercial sovereign debt rated 'AA' or 'A' will stand at about 14 per cent of total commercial debt. At the same time, the share of debt rated 'BBB' and below is set to account for 86 per cent, said the S&P report.
According to our calculations, Jordan will face the highest debt rollover ratio (including short-term debt) among rated Mena sovereigns, reaching 49 per cent of total debt, followed by Egypt (42 per cent).
The debt-rollover ratios for infrequent issuers with small but lumpy debt obligations can be very low if little or no debt matures in a given year and if they do not have a significant amount of short-term debt.
The rollover ratios of sovereigns with a higher proportion of official debt tend to be lower, because official debt typically has longer maturities than commercial debt, the report added.-TradeArabia News Service