World Economy

(P)GCC Facing $94b Debt Crunch in 2016

(P)GCC Facing $94b Debt Crunch in 2016(P)GCC Facing $94b Debt Crunch in 2016

The (Persian) Gulf Cooperation Council sovereign, financial and corporate borrowers must repay or refinance $94 billion in bonds and loans in 2016 and 2017, according to global lender HSBC, as low oil prices continue to hit revenues.

Tightening regional liquidity, rising rates and recent credit rating downgrades of some countries could also impact refinancing, Albawaba quoted the bank as saying.

The debt maturity profile of the region is expected to rise until 2020, with the UAE making up the biggest chunk of repayment or refinancing obligations.

Aggregating available data, outstanding foreign currency-denominated bonds and syndicated loans stand at around $610 billion, of which some $94 billion will mature in 2016 and 2017, according to UAE daily The National.

HSBC estimated that regional energy exporters would have fiscal and current account shortfalls of $260 billion and $135 billion this year and next year, equal to 8.7% and 4.5% of regional GDP.

“We remain confident that these funding gaps will be covered. However, expectations that they will be part financed through the sale of sovereign US dollar debt (in some cases for the first time) will complicate efforts to refinance existing paper that matures over 2016-17,” noted HSBC chief economist for the Middle East Simon Williams.

(P)GCC governments (comprising Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) face billions of dollars in budget deficits as low oil prices continue to hit public coffers.

Saudi Arabia is expected to face a budget deficit of almost $90 billion this year, followed by the UAE with $25 billion -$30 billion, the bank forecasted.

By sector, around 22% of the debt is owed by financial institutions, followed by sovereign funds and energy firms with 19% each.

“Close to half of the maturities over 2016-17 center on the banking sector, suggesting any increase in costs at refinancing could quickly feed through into a broader monetary tightening,” HSBC said.

Credit Ratings

Saudi Arabia: The S&P dropped a bombshell last Thursday, downgrading the sovereign credit rating for Saudi Arabia by two notches.

It slashed Saudi Arabia’s rating two notches from A+ to A-. "The decline in oil prices will have a marked and lasting impact on Saudi Arabia's fiscal and economic indicators given its high dependence on oil," S&P said in a statement.

The decision to cut Saudi Arabia’s rating was the most striking decision though. As the world’s largest oil-producer, sitting on some of the largest reserves in the world, Saudi Arabia has been a bastion of financial stability for a long time. But it also has a highly undiversified economy, dependent on oil for nearly all of its export earnings and budget revenues. Last October, S&P cut Saudi Arabia’s rating one level.

Kuwait: S&P affirmed its ‘AA/A-1+’ long- and short-term foreign and local currency sovereign credit ratings on Kuwait. The outlook is stable.

UAE: The low price of oil is expected to worsen Abu Dhabi’s balance sheet over the coming months, S&P has warned, but the emirate’s cash piles will continue to support the economy.

Maintaining the emirate’s long-term debt rating at AA, a notch below its highest AAA rating, the credit ratings agency calculated in a report released late on Feb. 6 that Abu Dhabi’s budget would run at a deficit of about 5% of the emirate’s GDP between this year and 2019.

Qatar: S&P last week affirmed its “AA” long-term and “A-1+” short-term foreign and local currency sovereign credit ratings on Doha with a stable outlook.

Bahrain: Like Saudi Arabia, Bahrain also saw its rating cut two notches. Significantly, though, it also lost investment grade as it went to BB from BBB-.

Oman: Oman too was lowered two steps as well to BBB- stable from BBB+ negative.