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Debt Risk of Gulf’s Richest States Jumps Amid Rush to Sell Bonds 

June 16, 2016

Ahmed A Namatalla, Bloomberg

Not even a rebound in oil prices can tame credit risk among the Gulf’s richest governments after they flooded the market with bonds.

The average cost of credit-default swaps for Saudi Arabia, Qatar and Abu Dhabi -- all boasting positions in the top five investment-grade rankings -- has surged by a third in less than two months to 137 basis points. While Saudi Arabia has yet to sell bonds, about $960 million worth of contracts are outstanding, the most since Bloomberg started tracking the data in 2011.

Abu Dhabi and Qatar have sold a combined $14 billion of debt since late April, and Saudi Arabia is said to be considering raising at least $10 billion as early as next month. The states, which use energy sales to help fund public spending, are tapping the international debt market after a slump in oil prices put a strain on their finances. While Brent crude has soared more than 70 percent since January to about $50 a barrel, analysts say it’s not enough to ease budgetary pressures.

“The significant increase in issuance from the region’s sovereigns and quasi-sovereign borrowers is the main driver of spreads here,” said Mohammed Elmi, an emerging market money manager at Federated Investors in London who bought into Qatar’s bond sale. Read more

 
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