Qatar Petroleum's (QP) $12.5bn bonds, which was recently oversubscribed more than three times, has shown the "extremely strong" appetite for investment-grade bonds from the Gulf sovereigns, or its related enterprises, according to Kamco Invest.
"The recent announcement of $12.5bn in bonds from QP that received orders of $41bn shows that investor appetite for investment-grade bonds from the GCC (Gulf Co-operation Council) governments, or GREs (government-related entities) remain extremely strong," the Kuwait-based non-banking financial powerhouse said in a latest report.
QP had earlier this month raised $12.5bn in a multi-tranche bond offering, marking a significant achievement for an oil and gas company in the international financial and capital markets. It is the largest US dollar fixed rate oil and gas offering and also the largest corporate issuance in the Middle East and North Africa region.
The proceeds from the bond offering will be used to support QP's ambitious growth plans, particularly the North Field expansion projects over the coming few years.
A meeting with international investors late last month had led to "significant" interest from insurers, asset managers, pension funds and bank treasuries, which resulted in "high quality order-book" with demand peaking above $40bn from as many as 500 investors, QP had said.
Kamco said Qatar had, nevertheless, shown a “steep” decline in the bonds and sukuk issuances in the first half of this year (H1-2021), following two consecutive years of declines in full-year issuances in 2019 and 2020, as its fiscal deficits were relatively smaller than other GCC peers.
In the broader GCC region, Kamco said, with H1-2021 issuance of $80bn and an additional $22.3bn in refinancing requirements in the second half (H2) of this year, total issuances are expected to exceed the $100bn mark for the year. The expectations of a faster recovery during H2-2021 are expected to result in additional issuance, mainly from corporates.
Nevertheless, despite the growth in corporate issuance, Kamco expects to see a year-on-year decline in government issuances in the GCC in 2021, and as a result full year issuances are expected to fall short of last year’s levels.
Reasoning for the slowdown in the issuances in the GCC region, the report said the dampener would be mainly the government, as oil prices continue to remain elevated at almost three-year high levels of more than $75 a barrel mark.
"This would significantly reduce the government’s infrastructure funding shortfall, thereby providing a much needed breather to the increasing debt-to-GDP (gross domestic product) ratio for the bulk of the GCC countries," it said.
Moreover, the funding requirements related to the pandemic were broadly met by reforms and other measures like loan moratoriums, relaxations of government duties and tapping of sovereign wealth funds against direct debt issuances as seen in some of the developed countries.
According to the International Monetary Fund, fiscal deficit for the GCC countries is expected to decline from 9.2% of GDP to 3% in 2021 and further down to 1.4% in 2022.
Highlighting that these estimates were made at a time when oil prices were just over the $60 mark, Kamco said with prices now "significantly" higher and consensus expectations of $67 in the third quarter of 2021, followed by $70 for the subsequent quarter, higher oil revenues are expected to further lower deficits.