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Henrik Raber Global Head, Capital Markets, |
The Gulf Cooperation Council (GCC) regional grouping is one the fastest growth engines in global debt capital markets.
The GCC countries recovered resoundingly from the 2008 financial crisis and debt volumes last year were at an all-time high of $71 billion. Momentum has continued into this year as the market witnessed its second-best two-month opening after 2012, with volumes of $8.7 billion.
The GCC also attracts diverse foreign interests and, lately, Asian investors have stepped up their game considerably. Both Dubai Islamic Bank and Investment Corporation of Dubai issued their benchmark $1 billion deals during the first two months of this year, with strong Asian investor participation. The strengthening demand for GCC issuers follows many years of investor work in Asia.
Asian investors are also expanding beyond their traditional investor sectors of agencies and sovereign issuers. Data indicates that more than $9 billion of US dollar paper from the GCC was placed with Asian investors in 2016, almost twice that of 2015. Year to date, various sources indicate almost three times the demand compared with same-period averages.
Another gauge of Asian interest is the quantum of Asian local-currency issuance by GCC issuers. Korean won-denominated paper has dominated the Asian local-currency sector in recent years, with a 43 percent share ($1.3 billion equivalent) of such paper issued since 2015. The offshore renminbi market is also key, with $796 million equivalent. The sector grew by more than 25 percent year on year in 2016. Year to date, it is seven times that of the same-period volumes last year.
Abundance of liquidity, coupled with record low interest rates from the developed markets, have had the effect of pushing Asian investors more into the emerging markets, particularly into the GCC market. The region’s issuers also present a sweet spot for yields, with more than 80 percent of issuance since 2015 from investment-grade issuers.
One factor driving the change is increasing familiarity. Asian investors have become better attuned to GCC credit and their institutional knowledge has grown considerably. Through years of investor work, knowledge has been gained on understanding the macroeconomics and credit fundamentals. Investors have actively attended deal roadshows in major Asian centres such as Hong Kong and Singapore, besides traditional locations such as London and Dubai.
Another driver is portfolio diversification towards GCC from their Asian home base. This is incentivized by the better value proposition of GCC paper relative to Asia. The trend began in late 2014, when yields on GCC paper became attractive for new-issue investors compared with similarly rated paper out of Asia. Moreover, new issuers coming to the bond market have the ability to further diversify their investments.
The momentum is set to continue strongly for the rest of the year. The region is strategic and is surrounded by the most dynamic developing economies, amid an emerging market driven supercycle. The embrace of green technology in the region, for instance, can pave the way for a stronger pipeline in green finance in the future.
It is clear the GCC will continue to attract more foreign investors, and increasingly those from Asia, as the investment links become stronger.
Euromoney and Standard Chartered will be running a series of webinars on debt capital markets. The first one will be on ‘Investing China: CGB futures and the Bond Connect’ on May 15. Find out more
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Henrik Raber is the Global Head of Capital Markets at Standard Chartered Bank. He joined the Bank in July 2009 as Regional Head of Capital Markets for Europe, Africa and Americas, and took on the role of Global Head of Debt Capital Markets in March 2010 before assuming his current role in mid-August 2014. Prior to Standard Chartered, Mr Raber was with UBS Investment Bank, where he headed European Credit Flow Sales and Trading, which encompassed Investment Grade, High Yield and Loans. Before working at UBS, Mr Raber was with Lehman Brothers for eight years in Fixed Income credit trading and capital markets.
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