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LONG-TERM DEBT REFINANCING

Mena sovereign borrowing to fall by 20pc, says report

DUBAI, February 26, 2017

Middle East and Northern African (Mena) sovereign borrowing will decline 20 per cent this year to hit $136 billion, after increasing sharply in 2016, according to a report by global ratings agency S&P.

This is on the back of fiscal consolidation implemented by all GCC countries, including Saudi Arabia, the largest Mena issuer in 2016.

In 2017, $28 billion (about 20 per cent) of Mena sovereigns' gross borrowing will be used to refinance maturing long-term debt, compared with $24 billion in 2016, resulting in an estimated net borrowing requirement of $108 billion, stated S&P in its latest report.

For 2017, we project that the commercial sovereign debt stock rated in the 'AA' category (Abu Dhabi, Kuwait, and Qatar) will be 16 per cent of the total (up from 8 per cent in our 2016 survey), while the share of 'A' category (Ras Al Khaimah and Saudi Arabia) debt will rise to about 17 per cent (up from 9 per cent in 2016), fueled by Saudi Arabia's large government borrowing requirement.

According to S&P, no Mena sovereigns have been rated in the 'AAA' category.

Due to the rise in debt issuance by higher rated sovereigns, the share of commercial debt in the 'BBB' category or below has fallen to about 67 per cent of the total, down from 83 per cent at the time of the 2016 survey.

"Egypt accounts for 25 per cent and Iraq 10 per cent of the commercial debt stock we expect to be in place by the end of 2017. We calculate that Egypt will face the highest debt rollover ratio (including short-term debt) among rated Mena sovereigns, reaching 29 per cent of GDP, followed by Lebanon (28 per cent) and Bahrain (23 per cent)," said the ratings agency in its report.

We expect Saudi Arabia (27 per cent), Lebanon (14 per cent) and Egypt (11 per cent) to issue the lion's share of commercial government debt in the region in 2017, said S&P in its report.

The three will account for $70 billion, or 52 per cent, of the total, it stated.

"We expect Iraq to remain the Mena sovereign with the largest share of bi- and multilateral debt in 2017 (42 per cent of the total), with the next largest recipient of official funding being Jordan (25 per cent)," it added.

Out of the 13 rated Mena sovereigns, Morocco, Egypt, Jordan, Lebanon and Sharjah and Ras Al Khaimah (UAE) are net hydrocarbon importers.

Sharp oil price declines since mid-2014 resulted in a significant widening of GCC fiscal deficits. In recent years, GCC sovereigns have implemented fiscal consolidation measures to cut government spending and increase non-oil government revenues, according to S&P report.

We expect GCC sovereign gross commercial long-term borrowing of $75 billion in 2017, down from $105 billion in 2016, which was a sharp increase from 2015 ($43 billion).

According to S&P, some clarity has emerged regarding GCC governments' deficit financing strategies, with Qatar, Bahrain, and Oman largely focused on debt issuance rather than asset drawdowns, while Abu Dhabi, Kuwait, and Saudi Arabia are likely to have more of a split between issuing debt and liquidating part of their assets to fund their central government deficits, said the ratings agency.

"We note that most GCC countries tapped the international debt markets in 2015 and 2016 to diversify their funding sources and reduce liquidity pressures in their domestic banking systems," it stated.

This phenomenon is relatively new for the region; historically GCC sovereigns haven't had much appetite to increase debt burdens, the report added.

On the future outlook, S&P said as a consequence, we project that Mena sovereigns' commercial debt stock will reach $720 billion by the year end, a 19 per cent increase from 2016.

"Adding bi- and multilateral debt, the total stock will reach $821 billion, a year-on-year increase of $135 billion, or 20 per cent. The share of noncommercial official debt (bi- and multilateral) in total sovereign debt is set to rise to 14 per cent of total debt as of year-end 2017, from 13 per cent in 2016," it stated.

The outstanding short-term commercial debt (debt with an original maturity of less than one year) will reach $106 billion at the end of this year, said S&P Global Ratings credit analyst Trevor Cullinan.

"We project that the 13 Mena sovereigns we rate will borrow an equivalent of $136 billion from long-term commercial sources in 2017. This represents a 20 per cent decline (of $34 billion) in long-term commercial debt issuance," he added.-TradeArabia News Service




Tags: Mena | ratings agency |

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