Despite the financial crisis, the GCC bond market has grown dramatically over the last decade on the back of strong public sector bond issues led by regional giants Saudi Arabia, Qatar and the UAE, said a report.

The bond issuance is presenting an increasingly attractive method for businesses to raise funds in the region, said National Bank of Kuwait in its latest GCC brief.

Governments have also taken an increasingly active role in issuance of late and are now responsible for the majority of outstanding debt securities. This not only helps finance public spending, but also to nurture ambitions to develop local economies into major financial hubs, it stated.

The value of GCC bonds (both public and private, conventional and sukuk) as of the third quarter of the year is estimated at $203 billion, said the top Kuwaiti lender, citing data.

NBK pointed out that the aggregate new issuance of bonds maintained a rising trend over the last decade with annual gross GCC bond issuance increasing by nine times its 2001 value, jumping from $6 billion to $54 billion in 2011.

According to NBK, the GCC bond market is currently dominated by Qatar, the UAE and Saudi Arabia. "Their debt issues account for the majority of outstanding GCC securities debt as they push forward to diversify their economies," it stated.

On a country-specific level, Qatar and the UAE stand out as the major issuers of debt in the region followed by Saudi. These three countries account for 88 per cent of the outstanding GCC bond market debt.

Qatar has been using the debt to fuel its ambitious infrastructure projects as it prepares for the 2022 World Cup and implements the government’s 2030 national vision.

More than $22 billion in sovereign debt has been issued over the past 2 years. Moreover, new efforts at developing the interbank market and the creation of a domestic ratings agency are guiding Qatar towards expanding its domestic debt market.

The UAE, on the other hand, has seen some of its debt issues directed towards the restructuring of Dubai’s public debt portfolio in order to settle its short term debt obligations. Abu Dhabi, its oil rich neighbor, is ramping up its public borrowing to diversify its oil-centric economy.

Furthermore, region-wide appetite for debt securities has seen a considerable jolt post-2010 with Saudi Arabia and Bahrain revving up debt issuance, in part thanks to the growing popularity of sharia’ compliant debt securities.

Saudi Arabia alone has issued more than $12 billion in sukuk over the past two years. The stock of sukuk now stands at half the value of conventional bonds.

In contrast, Kuwait and Oman have been slower in adopting debt securities as a source of financing. Their debt issuance has been typically used for liquidity control purposes.

Given the GCC region’s economic and financial ambitions, alternative sources of sustainable long-term financing, such as bonds, will be vital in supporting those aims, as will continued development of the regulatory framework that surrounds them, the report added.

Impressively enough, total outstanding debt has risen consistently over the last decade despite the financial crisis and its ongoing aftermath. The value of total bonds outstanding increased by $181 billion between 2001 and 2011, amassing rapid gains before the 2008 crisis but slowing down afterwards, said NBK in its review.

The Kuwaiti lender pointed out that some of the rise was due to strong regional economic growth related to high oil prices.

As a result, high investor confidence helped fuel the region’s ambitious infrastructure and development projects. This in turn translated into a need for vast financing. While economic growth slowed after 2008, it did not derail the GCC region from its long term development aims. Huge financing needs still exist, said the report.

All in all, the GCC debt market is still nascent when compared to those in many developed countries. Yet, its development is a positive stride towards a better defined and efficient regional capital market. The market’s resilient performance over the last decade is testament of its popularity within the GCC, it added.-TradeArabia News Service