Gulf Cooperation Council countries may struggle to refinance $94
billion of debt in the next two years as the region faces slowing
growth, rising rates and rating downgrades, according to HSBC
Holdings Plc.
Oil-rich GCC states have to refinance $52 billion of bonds and
$42 billion of syndicated loans, mostly in the United Arab Emirates
and Qatar, HSBC said in an e-mailed report. The countries also face
a fiscal and current account deficit of $395 billion over the
period, it said.
Expectations that these funding gaps "will be part financed
through the sale of sovereign U.S. dollar debt will complicate
efforts to refinance existing paper that matures over 2016 and
2017," Simon Williams, HSBC’s chief economist for the Middle East,
said in the report. "With the Gulf acting as a single credit market,
the refinancing challenge will likely be much more broadly felt" and
"compounded by tightening regional liquidity, rising rates and
recent downgrades," he said.
GCC states, which collectively produce about a quarter of the
world’s oil, are taking unprecedented measures to shore up their
public finances as crude prices struggle to rebound from the lowest
levels in 12 years. The countries, which include Saudi Arabia and
Oman, have also been hit by a series of rating cuts, while billions
of dollars have been drained from the region’s banking system.
Sovereign Debt
Gulf countries have about $610 billion outstanding in
FX-denominated bonds and syndicated loans, HSBC said. This
includes financial and corporate debt, as well as sovereign
debt, mainly in the U.A.E., Bahrain and Qatar, it said.
HSBC is confident that the funding gaps will be covered and
expects a "raft" of foreign sovereign bond issuance to fund
budget deficits. Any new issuance will have to compete with
upcoming refinancing needs, the bank said.
Almost half of the maturities due in the next two years are
in the banking sector, HSBC said, "suggesting any increase in
costs at refinancing could quickly feed through into a broader
monetary tightening."
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