Gulf region bond issuance quadruples

Gulf region bond issuance has more than quadrupled to US $4,067m** in the first eight months of this year compared to the total of $876m for all of last year. Sukuks now make up 32% of the total (US $1,292m) up from 14% (US $122m) last year (source: MEED).

Trowers & Hamlins says that the increase in the oil price has been one of the key drivers of demand for debt from the Gulf region. This has increased liquidity generally and in state owned pension and reserve funds such as the State Government Reserve Fund of Oman and boosted confidence amongst foreign investors about the ability of the regional economy to enable borrowers to service their debt.

Andrew Rae, Partner, of Trowers & Hamlins comments: "Foreign investors are becoming a bigger percentage of this market. They have become more knowledgeable and discerning regarding country to country differences within the region."

"Foreign investors are looking at corporate issuers, not just sovereign debt, and are increasingly comfortable with the fastest growing area of bonds - shariah compliant sukuks."

48% of the State of Qatar's Global Sukuk issue was taken up by non-Muslims. Such was the popularity of the issue that its size was increased from US $500m to $700m. The Dubai's Department of Civil Aviation recently announced a US $750m sukuk issue, which will be the biggest ever.

Trowers & Hamlins says that the increased sophistication of the banking sector and finance departments of Gulf companies has encouraged and enabled them to move their funding from bank loans to longer term debt.

The development of financial sector regulators has also helped. Says Andrew Rae: "Regulation in the Gulf region is moving towards a greater appreciation of, and familiarity with, commercial realities. It's a much better balance between regulation and facilitation. As the red tape burden has fallen the costs of getting these bond issues done has tumbled."

Andrew Rae says that the continued rapid growth of the Gulf region's bond market is dependent on a clean record on bond repayments.

Explains Andrew Rae: "Sentiment in emerging markets is always fairly brittle but corporate governance is improving and the outlook is positive."