A brightening global economic outlook and a shift in investor appetite towards emerging market debt helped to spur US$32.6 billion (Dh119.74bn) of bond sales in the Gulf this year.
That was down from the $42.9bn borrowed by companies and governments from investors last year, according to Bloomberg data. But it was still more than double the $15bn of bond sales in 2008 during the worst stretch of the financial crisis.
The top sellers of debt in the region this year were the Qatar Investment Authority, which sold $3.5bn of bonds in July, and the Dubai Electricity and Water Authority, which issued $3bn in April and October. Qatar Telecom and Abu Dhabi's International Petroleum Investment Company followed with $2.75bn and $2.5bn of bonds, respectively.
Bond sales are an important barometer of economic health because they signal how easily corporations can borrow to finance their operations. They also serve as an indicator of investors' confidence in the stability of government finances.
"I would expect 2011 to be at least as strong as 2010 in terms of new issuance," said Michael Grifferty, the president of the Gulf Bond and Sukuk Association, an industry body. "Globally, emerging market debt has increased, driven by low dollar interest rates and the faster recovery of developing economies. That trend should sustain for as long as US rates remain low, which seems a good bet to last a while longer."
Indeed, low interest rates in the US, coupled with the Federal Reserve's decision to pump an additional $600bn into the economy through a second round of so-called quantitative easing, meant that investors in the West were flush with cash this year. With returns on debt investments in the developed world stagnant, much of that fresh cash went to emerging markets, including the Middle East.
This year's bond sales in the Gulf came against a backdrop of relatively healthy bond issuance globally. About $3.37 trillion of bonds were sold this year, according to Bloomberg data, a 21 per cent decline compared with last year, but still more than in 2008.
Whether next year is a bumper one for Gulf bonds depends on several factors, including whether international investor appetite for emerging market debt remains strong and the sustenance of a gradual recovery from the worst global downturn in a generation. The IMF currently expects emerging economies to grow 6.4 per cent next year. That compares with just 2.2 per cent growth in the developed world.
An important factor for regional issuances next year could also be Dubai's need to tackle more than $30bn of maturing debt. The emirate is expected to deal with it by raising money through asset sales, refinancings and possibly more bond sales. The Government already sold $1.25bn of bonds in September, tying with Bahrain as the top sovereign issuer in the region this year.
"If 50 per cent of loans [that come due next year] are refinanced by bond issues, Dubai issues $10bn of bonds next year and $6bn in 2012," said Turker Hamzaoglu, a regional economist at the Bank of America Merrill Lynch, describing one scenario in a recent report on the Middle East and North Africa. However, under other scenarios Dubai's bond issuance could be as low as $1.5bn.
But whether or not Dubai plays a big role in boosting bond markets, a major force behind Gulf bond issuance next year figures to be companies' need to refinance short-term debt with new borrowings.
"Refinancing will be a key driver," said Mr Grifferty. "GCC corporates have a lot of short-term debt outstanding. We can expect that some of these companies will be looking to lengthen their maturity profiles and also to lock in low dollar interest rates."
Backing that scenario, he said, was the need of banks to limit exposures to certain sectors - such as property. That may push companies to issue bonds instead of going to banks for loans.
"Given liquidity constraints and the banks' need to limit exposure to certain sectors and individual borrowers, we can expect corporates to consider the capital markets," he said.
