GCC faces serious refinance challenge

|By Arabian Post Staff| The need to part-finance funding gaps by the GCC countries through sovereign US dollar debt will complicate their efforts to refinance the bonds and loans maturing this year and the next, HSBC warned in a report on the GCC finances.

Some $94 billion in foreign currency denominated bonds and syndicated loans by GCC countries are maturing this year or the next year, which means these must either be repaid or rolled over, HSBC said in. The Gulf countries account for a total $610 billion in bonds and loans.

“The refinancing sum includes outstanding financial and corporate paper as well as debt issued by the sovereign, which is largely focused in UAE, Bahrain and Qatar,” Simon Williams, HSBC Chief Economist for the Middle East, said.

“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.

Meeting the maturities without dipping into sovereign wealth fund capital is likely to be more difficult in the current regional financial environment. The slump in oil prices is set to leave regional energy exporters with fiscal and current account shortfalls of $260 billion and $135 billion over in 2016 and 2017, equal to 8.7 per cent and 4.5 per debt of regional GDP, impacting policymakers’ room for financial manoeuvre, HSBC estimated.

“With the Gulf acting as a single credit market, however, the refinancing challenge will likely be much more broadly felt, with its impact compounded by tightening regional liquidity, rising rates and recent downgrades by international rating agencies. Close to half of the maturities over 2016-17 centre on the banking sector, suggesting any increase in costs at refinancing could quickly feed through into a broader monetary tightening,” the HSBC report said.