Middle East sovereigns are expected to shrug off the feud that has erupted between Saudi Arabia and Iran and go on to place a record amount of debt in 2016, with a debut dollar deal from Saudi still anticipated to be the star of the show.
Gulf Cooperation Council sovereigns are tipped to raise $15 billion from the bond market this year – more than all GCC sovereign dollar debt issuance from 2013 to the end of 2015.
“That’s the area where there is going to be a lot of activity,” said a syndicate banker, one of several officials at international banks who began sounding out Saudi Arabia last year for a potential dollar transaction.
Not only Saudi Arabia but the Sultanate, Qatar, Dubai, Bahrain and Kuwait are all touted as issuers for 2016 by bankers.
Bahrain and the UAE both curtailed Iranian diplomatic presence in their countries on Monday, with Manama ordering Teheran’s diplomats out of Bahrain within 48 hours.
“The Saudi/Iran situation has been bubbling for a long time,” said an emerging markets DCM banker. “I don’t think it will have much of an effect, if any.”
The syndicate banker said: “The back and forth between the countries is going to continue happening, but investors have been in the region for a while and know that it will settle.”
Saudi Arabia ran a record budget deficit of $97.9 billion in 2015 because of low oil prices, the country’s Council of Economic and Development Affairs said last week.
“Saudi could raise global oil market prices tomorrow if they signalled the intent to moderate production – the reality is they want to keep oil prices low to hold back investment into the Iranian oil sector.”
The budget changes include reduced energy subsidies and an increase in defence and security spending, in part because Saudi Arabia is also engaged in a conflict with Yemeni army units allied to the Iran-allied Houthi militia.
“One of the main reasons they will need financing is because they have been funding the war in Yemen,” said the DCM banker, who added that he is hoping to pitch for the Saudi deal.