gcc fixed income chart book: fy 2018 review · 3 foreword welcome to our fy 2018 chart book for the...

GCC Fixed Income Chart Book: FY 2018 Review

10th January 2019 Rakesh Sahu / Chavan Bhogaita

2

Disclaimer

The information contained herein has been prepared by First Abu Dhabi Bank P.J.S.C (“FAB”). FAB relies on information

obtained from sources believed to be reliable but does not guarantee its accuracy or completeness.

This presentation has been prepared for information purposes only and is not and does not form part of any offer for sale

or solicitation of any offer to subscribe for or purchase or sell any securities nor shall it or any part of it form the basis of or

be relied on in connection with any contract or commitment whatsoever.

Some of the information in this presentation may contain projections or other forward-looking statements regarding future

events or the future financial performance of FAB. These forward-looking statements include all matters that are not

historical facts. The inclusion of such forward-looking information shall not be regarded as a representation by FAB or any

other person that the objectives or plans of FAB will be achieved. FAB undertakes no obligation to publicly update or

publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise.

3

Foreword

Welcome to our FY 2018 chart book for the GCC fixed income market. The idea is very simple – to give those of you who

follow this market a quick snapshot of some of the key points in terms of the following:

GCC credit markets performance in 2018

Primary Market issuance in 2018 and the new issue trend

Market developments and relative value analysis

Secondary Market performance of key instruments (snapshot from 29th December 2017 to 31st December 2018)

We have deliberately made the report text-light in an attempt to make it easier to digest. Hopefully you will find it both

interesting and useful.

If you have any feedback on the report, or indeed would like to discuss any of the points highlighted, please do contact us.

Chavan Bhogaita Rakesh Sahu

Managing Director & Head of Market Insights & Strategy Director, Market Insights & Strategy

Global Markets, FAB Global Markets, FAB

[email protected] [email protected]

+971 2 6110 127

Please click here to view our recent publications on MENA and Global Markets

mailto:[email protected]


https://www.nbad.com/en-ns/insight-and-features/mena-and-global-markets.html

4

2018 was a tough year for credit markets globally…

Note: Indices shown above are Bloomberg Barclays bond indices available on Bloomberg; Source: Bloomberg/FAB

Global Aggregate IG Multi Currency: LEGATRUU Index; Global Aggregate IG US$: LGUSTRUU Index; Global High Yield Multi Currency: LG30TRUU Index; Global Corporate IG US$: LUACTRUU Index; US

Corporate High Yield US$: LF98TRUU Index; EM Hard Currency Aggregate: LG20TRUU Index; EM US$ Aggregate: EMUSTRUU Index; EM US$ IG: BEHGTRUU Index Index; EM US$ High Yield: I31732US

Index; EM Local Currency Govt: EMLCTRUU Index; 1-3 Year IG Multi Currency: LG13TRUU Index; 3-5 Year IG Multi Currency: LG35TRUU Index; 5-7 Year IG Multi Currency: LG57TRUU Index; 7-10 Year IG

Multi Currency: LG71TRUU Index; "Aaa" Multi Currency: LG3ATRUU Index; "Aa" Multi Currency: LG2ATRUU Index; "A" Multi Currency: LG1ATRUU Index; "Baa" Multi Currency: LGBATRUU Index

-1.20%

+0.01%

-4.06%

-2.51%

-2.08%

Global Aggregate IG Multi Currency

Global Aggregate IG US$

Global High Yield Multi Currency

Global Corporate IG US$

US Corporate High Yield US$

Global Aggregate Bond Index – Total Return in 2018

-3.02%

-2.46%

-1.10%

-4.73%

-3.40%

EM Hard Currency Aggregate

EM US$ Aggregate

EM US$ IG

EM US$ High Yield

EM Local Currency Govt

Emerging Markets Bond Index – Total Return in 2018

-0.34%

-3.54%

+0.55%

-3.90%

"Aaa" Multi Currency

"Aa" Multi Currency

"A" Multi Currency

"Baa" Multi Currency

Bond Index by Credit Quality – Total Return in 2018

-0.79%

-1.13%

-1.59%

-0.64%

-1.93%

1-3 Year IG Multi Currency




10+ Year IG Multi Currency

Bond Index by Maturity – Total Return in 2018

5

…but GCC bonds weathered the storm pretty well

GCC bonds and sukuk delivered a modest positive return, in the context of largely negative returns from

major EM indices, thanks to the strong underlying fundamentals of these high quality credits.

Note: Indices shown above are Bloomberg Barclays bond indices available on Bloomberg; All country index are aggregate index for US$ bonds issued from that country; Source: Bloomberg/FAB

GCC US$ Aggregate IG & HY (A): BGCCTRUU Index; GCC US$ Aggregate IG (A+): BGCITRUU Index; EM Asia Inv. Grade US$ (A-): BEUGTRUU Index; EM Asia US$ (BBB+): BEUCTRUU Index; EM Inv. Grade

US$ (A-): BEHGTRUU Index; EM Hard CCY Aggregate (BBB-): LG20TRUU Index; UAE aggregate index: I29135US Index; KSA aggregate index: I29134US Index; Qatar aggregate index: I29133US Index;

Kuwait aggregate index: I29132US Index; Oman aggregate index: I31504US Index; Bahrain aggregate index: I28750US Index

100

110

120

130

140

150

160

170

180

190

200

UAE OAS

OAS change: +59bps

Total Return: +0.63%

250

300

350

400

450

500

550

600

Bahrain OAS

OAS change: +16bps


100

110

120

130

140

150

160

170

180

190

Saudi Arabia OAS

OAS change: +44bps

Total Return: -1.04%

100

110

120

130

140

150

160

170

180

Qatar OAS

OAS change: +13bps


80

90

100

110

120

130

140

150

160

Kuwait OAS

OAS change: +33bps


200

225

250

275

300

325

350

375

400

425

450

Oman OAS

OAS change: +196bps

Total Return: -6.81%

80

100

120

140

160

180

80

100

120

140

160

180

Jan

18

Fe

b1

8

Ma

r18

Ap

r18

Ma

y1

8

Ju

n1

8

Ju

l18

Au

g1

8

Se

p18

Oc

t18

No

v18

Dec

18

EM Hard CCYAggregate (BBB-)

EM Inv. Grade US$(A-)

EM Asia US$ (BBB+)

EM Asia Inv. GradeUS$ (A-)

GCC US$ AggregateIG (A+)

GCC US$ AggregateIG & HY (A)

Option Adj. Spread (OAS) performance on a rebased scale (starting 2nd Jan 2018)

-3.02%

-1.10%

-0.84%

-0.012%

-0.001%

+0.18%

EM Hard CCY Aggregate (BBB-)

EM Inv. Grade US$ (A-)

EM Asia US$ (BBB+)

EM Asia Inv. Grade US$ (A-)

GCC US$ Aggregate IG (A+)

GCC US$ Aggregate IG & HY (A)

2018 Total Return (%) of various EM / GCC bond index (avg. credit rating in bracket)

GCC US$ Aggregate IG (A+)

EM Hard CCY Aggregate (BBB-)

EM Inv. Grade US$ (A-)

EM Asia US$ (BBB+)

EM Asia Inv. Grade US$ (A-)

GCC US$ Aggregate IG & HY (A)

GCC credits

outperformed

their peers

UAE Agg. Bond Index

OAS movement in 2018

Saudi Agg. Bond Index


Qatar Agg. Bond Index


Kuwait Agg. Bond Index


Oman Agg. Bond Index


Bahrain Agg. Bond Index


6

We remain cautiously optimistic for GCC credits in 2019

Note: * F is forecast by FAB; Source: Bloomberg/FAB

Oil

price

GDP

growth

Rates;

FED hike

Rating

Outlook

The US Fed has cut its interest rate guidance to just two

hikes in 2019 from an earlier three, citing a cautious

outlook on the US economy. The more dovish outlook

has pushed US rates lower. This should support EM

credit spreads , particularly GCC, given its

investment grade rating and stable outlook.

1.251.501.752.002.252.502.753.00

Jan18 Jul18 Jan19

Fed funds effective rate

Implied future rate (Jan'2020)

US FED rate vs future implied rate

Dec18

2.35

2.55

2.75

2.95

3.15

3.35

Jan18 Jul18 Jan19

10Y US Treasury yield in %

Dec18 In the above table, we try to establish a correlation between

oil price and GCC credit spreads. Our base case

assumption for Brent is an average price of US$70-75

in 2019, even though it has retraced to the $50s from

the $85 level seen in early October. A further

bounce back in oil prices in 2019 would support

credit spreads positively.

2015 2016 2017 2018 2019F*

Brent price avg.

($/bbl) $53.60 $45.13 $54.75 $73.05 $70-75

GCC Option Adj.

Spread (OAS) change 28 bps 16 bps 9 bps 36 bps

35-40

bps

GCC Option Adj.

Spread (OAS) Avg. 153 bps 164 bps 157 bps 169 bps 155 bps

The recovery in economic growth for the GCC

nations remains on track, supported by the

governments’ expansionary budgets along with the

fiscal consolidation we have seen over the past three

years. The IMF indeed continues to see growth pick up

in 2018 and 2019 after the negative growth seen in 2017.

3.00%

2.60%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

2015 2016 2017 2018E* 2019E*

IMF

World Bank

GCC GDP growth YOY in %

* ‘E' is estimates

UAE Abu

Dhabi Kuwait Qatar KSA Oman Bahrain

Moody’s Aa2

Stable

Aa2

Stable

Aa2

Stable

Aa3

Stable

A1

Stable

Baa3

Negative

B3

Stable

S&P NA AA

Stable

AA

Stable

AA-

Stable

A-

Stable

BB

Stable

B+

Stable

Fitch NA AA

Stable

AA

Stable

AA-

Stable

A+

Stable

BB+

Stable

BB-

Stable

All GCC sovereigns, with the exception of Oman,

have now a stable outlook from all three

international rating agencies. While Oman runs a

risk of losing its coveted investment grade rating,

we would argue that a downgrade should not trigger

any major widening of broader GCC credit spreads as the

risk is already priced in by market in Oman’s sovereign credit

spreads.

7

Bond Inclusion Criteria

Bonds from Sovereign and quasi-sovereigns (GREs) should be

eligible for inclusion, meeting the below criteria.

1. US$ bonds with size of 500m or more; and minimum maturity of

2.5 years at the time of issuance

2. At least one year to maturity at the point of inclusion; subject to

liquidity criteria

3. Unrated conventional bonds eligible if meeting criteria #1 & #2

4. Sukuk with at least one credit rating are also eligible, if meeting

criteria #1 & #2

Inclusion of GCC nations in JP Morgan’s Emerging Markets Bond

Index should act as additional catalyst during 2019

Source: FAB; Bloomberg; JP Morgan

JP Morgan EM Global Diversified Bond Index (EMBIGD)

~$300bn AUM

benchmarked

to EMBIG Index

(conservative

estimate)

GCC States

to be

included

Potential

weight in the

index

Potential

allocation

In US$ bn

(AUM*Weight)

KSA 3.1% 9.3

Qatar 2.7% 8.1

UAE 2.6% 7.8

Bahrain 2.1% 6.3

Kuwait 0.8% 2.4

Total GCC FI 11.3% 33.9

US$ bonds from five GCC states – Saudi Arabia, the UAE, Qatar, Bahrain & Kuwait – are due for the inclusion in JP Morgan’s

flagship Emerging Markets Bond Index from the beginning of 2019, in a phased manner, after meeting certain criteria.

Around $300bn of assets under management are benchmarked to this immensely popular index among portfolio managers.

The five GCC states together would secure a weight of approximately 11.3% in the EMBI index.

We conservatively estimate that this would attract around $25-30bn of fund inflows in the medium term.

The incremental fund inflows are expected to support GCC credit spreads positively in 2019.

8

2018

$346bn

2015

$208bn

2010

$136bn

Outstanding bonds at year-end

The GCC bond market has experienced rapid growth in recent

years. The chart below shows value of outstanding bonds and

sukuk from 2010 to the end of 2018.

GCC hard currency bond market saw rapid growth since 2016

Source: Bloomberg/FAB

In the above analysis we have considered major hard currency ($/€/£/A$) bonds and sukuk issuances from the six nations in the

GCC. This includes both fixed and floating rate issuances of $100m or above and maturity of 1-year or above.

6.4 7.3 6.8 3.3 3.4 2.1

40.0

50.1

34.5

25

35

45

55

65

75

85

95

105

115

125

0

5

10

15

20

25

30

35

40

45

50

55

2010 2011 2012 2013 2014 2015 2016 2017 2018

US

$/b

arr

el

US

$ b

illi

on

Sov bond issue in US$ bn (LHS) Avg Brent price in $/bbl (RHS)

GCC Sovereign issuance trend

72

138

0

20

40

60

80

100

120

140

160

5 years net issuancefrom 2011 to 2015

3 years net issuancefrom 2016 to 2018

US

$ b

illi

on

Net bond/sukuk issuance in GCC

+92%

9

We expect hard currency new issuance to remain elevated in 2019


1. Slightly lower level of issuance than what we have

seen in the past three years due to the expected

lower funding requirements of sovereigns as they

consolidate their fiscal position with the help of

Higher oil revenues along with the increased non-oil

revenues that the governments are now generating

through diversification, subsidy reforms and

implementing new tax levies like VAT

Alternate sources of funding by issuing in other

currencies, including home currencies

2. Increased issuance from corporates particularly

government related entities

As they stand to benefit from stronger economies,

relative to the previous two years, which would

demand higher capital expenditure

A gradual tightening from central banks is also

prompting issuers to lock in funding in an

opportunistic manner. Around $20bn of corporate and

financial bonds and sukuk mature in 2019 and much of

this would need to be refinanced

Corporate treasurers are now performing prudent

liability management exercises to take advantage of

the market situation (broadening investor base and

better liquidity in the market) . We expect this to

continue through 2019

3. Higher Sukuk issuance as compared to 2018

Many issuers have already established their trust

certificate programme last year and should benefit

from the liquidity available with Islamic investors.

This is an asset class gaining better traction of late, as

we saw significant pick up in issuance during the

second half of 2018 after a slow start to the year.

What to expect in 2019

23.2 21.1

18.2 18.4 18.9

15.0

54.6

61.6

56.1

2.4 4.8

14.1 11.4

13.7

7.6

14.4

22.3

21.8

25.6 25.9

32.2 29.8

32.6

22.6

69.1

83.8

77.9

70.0

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

US

$ b

illi

on

Sukuk

Conventional bond

Total hard currency issuance (bonds & sukuk in $/€/£/A$)

Total issuance

For this analysis we have considered major hard currency ($/€/£/A$) bonds and sukuk issuances from the six nations

in the GCC. This includes both fixed and floating rate issuances of $100m or above and maturity of 1-year or above.

We expect the new issuance supply in

hard currency in 2019 to remain elevated

in the range of $60-70bn.

FAB

estimate

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2010 2011 2012 2013 2014 2015 2016 2017 2018

US

$ b

illi

on

2018

Total Eurobond issuance in currency other than $/€/£/A$

HKD &

SGD

CHF

CNY

JPY

• GCC banks were the primary borrowers and they prefer to raise

their short-term funding (1-5 years) through these currencies

• Panda bonds (CNY bonds issued by non-Chinese issuers) were

the most favoured funding method, followed by bonds in CHF

• Emirate of Sharjah last year become the first sovereign from the

GCC to issue a Panda bond

10

GCC governments are also focusing on local currency bond/sukuk

market as an alternate source of funding

What does the local debt market mean for Saudi Arabia and its investors?

Increased transparency

from govt; Investors get

better disclosure; Help

growing the SAR market

Wider and diversified

investor base &

liquidity:

Retail, Institutional,

Local, International

Less pressure on Saudi

banking sector, so far

the main subscriber to

govt. riyal debt

Alternate source of

funding that may help

KSA to rely less on the

international bond

market in coming years

1 2 3 4

Source: Saudi Arabia’s Ministry of Finance/FAB/Bloomberg

The Kingdom of Saudi Arabia has already established a robust Saudi

Riyal Sukuk yield curve by becoming a regular issuer in the local market.

KSA’s Ministry of Finance on 1st April announced that it has received

approval from the Capital Market Authority to list and trade Saudi Riyal

bonds and sukuk on the Saudi Stock Exchange (Tadawul). The listing

came into effect on 8th April. The listing allows local/international

investors to buy and trade riyal Sukuk on the exchange.

The UAE also enacted a new debt law in October 2018 which would allow

the federal government to issue sovereign bonds and establish an UAE

dirham yield curve. According to the Ministry of Finance, the new law

would allow UAE banks to purchase government bonds in dirhams or

foreign currencies and will help them comply with Basel III requirements.

Under UAE’s new debt law a Public Debt Management Office (DMO) will

be established within the Ministry of Finance. The DMO would be

responsible for proposing short and long-term public debt management

strategies in consultation with the UAE Central Bank, and issuing

government bonds and treasury bills.

17.5 21.5

13.0

15.6

13.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2016 2017 2018

US

$ b

illio

n

US$ bonds/sukuk issued SAR sukuk issued

KSA: A bulk of funding now raised through riyal sukuk

11

Relative Value: GCC, Asia & Broader Emerging Markets

Note: Indices shown above are Bloomberg Barclays bond indices available on Bloomberg; Data as on 09-Jan-2019; Source: Bloomberg/FAB

GCC US$ Aggregate IG & HY (A): BGCCTRUU Index; GCC US$ Aggregate IG (A+): BGCITRUU Index; EM Asia Inv. Grade US$ (A-): BEUGTRUU Index; EM Asia US$ (BBB+): BEUCTRUU Index; EM Inv. Grade

US$ (A-): BEHGTRUU Index; EM Hard CCY Aggregate (BBB-): LG20TRUU Index

199

149

166

279

178

310

0

1

2

3

4

5

6

7

4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%

Ave

rag

e c

red

it r

ati

ng

of

the in

de

x

Yield offered by the index

Bubble size indicates the option adjusted spread (OAS) for the bond index in basis points

Relative Value of various EM/GCC bond index

BBB-

BBB

BBB+

A-

A

A+

AA-

BB+

EM Inv Grade US$;

A-; 4.47%; 9.5Y

GCC US$ Aggregate IG & HY;

A; 4.58%; 9.3Y

EM Asia US$ Aggregate;

BBB+; 5.46%; 6.2Y

EM Asia IG US$;

A-; 4.32%; 7.0Y

EM Hard CCY Aggregate;

BBB-; 5.42%; 8.8Y

GCC US$ Aggregate IG;

A+; 4.18%; 9.7Y

12

GCC inv. grade sovereign bonds vs EM peers – 10Y relative value

* Notes: Yields as on 09-Jan-2019; Composite rating - please refer Appendix for definition and calculation method; Dubai is not rated by any rating agency and we have assigned a proxy rating

of ‘BBB+’ based on its fundamentals with a relative comparison to Emirate of Sharjah (BBB+) and Dubai GREs like DP World (BBB+) and DEWA (BBB) Source: Bloomberg/FAB

ADGB 5/26

ADGB 10/27

CHILE 1/26 CHILE 2/28

CHINA 11/27

COLOM 4/27

DUGB 4/29 S

FINL 2/26

GBHK 2/27 S

INDOIS 3/28 S

INDON 7/27

INDON 1/28

KOREA 1/27

KSA 10/26

KSA 4/27 S

KSA 3/28

KUWIB 3/27

MALAYS 4/26 S

MEX 1/28

POLAND 4/26

QATAR 6/26

QATAR 4/28

RUSSIA 5/26

RUSSIA 3/29

SHARSK 3/28 S

3.20

3.30

3.40

3.50

3.60

3.70

3.80

3.90

4.00

4.10

4.20

4.30

4.40

4.50

4.60

4.70

4.80

10Y sovereign bonds relative value - YTM (%) vs Composite Rating*

Yie

ld t

o m

atu

rity

(Y

TM)

in %

*Composite rating AA+ AA AA- A+ A A- BBB BBB- BBB+

13

GCC sub-inv. grade sovereign bonds vs EM peers – 10Y relative value

* Notes: Yields as on 09-Jan-2019; Composite rating - please refer Appendix for definition and calculation method; Source: Bloomberg/FAB

ANGOL 5/28

ARGENT 1/27

ARGENT 1/28

BHRAIN 1/26

BHRAIN 10/28 BHRAIN 9/29

BRAZIL 5/27 BRAZIL 1/28

EGYPT 2/28

OMAN 6/26

OMAN 3/27

OMAN 1/28

SOAF 4/26 SOAF 10/28

TURKEY 3/27 TURKEY 2/28

ARGENT 7/28

AZERBJ 9/29

BAHAMA 11/28 DOMREP 7/28

ECUA 1/28

GHANA 5/29

KENINT 2/28 PNGIB 10/28

SRILAN 4/28

LEBAN 5/29

JORDAN 1/27

PARGUY 3/27 4.60

4.80

5.00

5.20

5.40

5.60

5.80

6.00

6.20

6.40

6.60

6.80

7.00

7.20

7.40

7.60

7.80

8.00

8.20

8.40

8.60

8.80

9.00

9.20

9.40

9.60

9.80

10.00

10.20

10.40

10.60

10.80


Yie

ld t

o m

atu

rity

(Y

TM)

in %

*Composite rating BB+ BB BB- B+ B B-

14

GCC inv. grade sovereign bonds vs EM peers – 30Y relative value

* Notes: Yields as on 09-Jan-2019; Composite rating - please refer Appendix for definition and calculation method; Dubai is not rated by any rating agency and we have assigned a proxy rating

of ‘BBB+’ based on its fundamentals with a relative comparison to Emirate of Sharjah (BBB+) and Dubai GREs like DP World (BBB+) and DEWA (BBB) Source: Bloomberg/FAB

ADGB 10/47

CHILE 6/47

COLOM 6/45

DUGB 1/43

INDON 1/47

INDON 7/47

INDON 1/48

KAZAKS 7/45

KOREA 6/44

KSA 10/46

KSA 10/47 KSA 4/49

MALAYS 4/46 S

MEX 1/47 MEX 2/48

QATAR 6/46

QATAR 4/48

ROMANI 6/48 RUSSIA 9/43

RUSSIA 6/47

3.75

3.85

3.95

4.05

4.15

4.25

4.35

4.45

4.55

4.65

4.75

4.85

4.95

5.05

5.15

5.25

5.35

5.45


Yie

ld t

o m

atu

rity

(Y

TM)

in %

*Composite rating AA AA- A+ A A- BBB+ BBB- BBB

15

GCC sub-inv. grade sovereign bonds vs EM peers – 30Y relative value

* Notes: Yields as on 09-Jan-2019; Composite rating - please refer Appendix for definition and calculation method; Source: Bloomberg/FAB

OMAN 3/47 OMAN 1/48

SOAF 10/46

SOAF 9/47

SOAF 6/48

TURKEY 2/45

TURKEY 5/47

BRAZIL 2/47

BHRAIN 9/44

BHRAIN 9/47

EGYPT 2/48

ARGENT 1/48 ANGOL 5/48

DOMREP 2/48

EGYPT 1/47

GHANA 6/49

JORDAN 10/47

KENINT 2/48

NGERIA 11/47

PARGUY 3/48

SENEGL 3/48

5.45

5.65

5.85

6.05

6.25

6.45

6.65

6.85

7.05

7.25

7.45

7.65

7.85

8.05

8.25

8.45

8.65

8.85

9.05

9.25

9.45

9.65


Yie

ld t

o m

atu

rity

(Y

TM)

in %

*Composite rating BB+ BB BB- B+ B B-

16

Notes: * X-axis represents the composite rating (please refer Appendix for calculation method); Dubai is not rated by any rating agency and we have assigned a proxy rating of ‘BBB+’ based on

its fundamentals with a relative comparison to Emirate of Sharjah (BBB+) and Dubai GREs like DP World (BBB+) and DEWA (BBB); The ratings have been arranged from higher to lower starting

from ‘AA’, followed by ‘AA-’ and so on; CDS levels are for 09-Jan-2019 & in basis points; Source: Bloomberg/FAB

GCC sovereign credit ratings & CDS spreads versus peers

The chart shows that Gulf sovereigns are rated favourably

compared to many of their peers from the EMEA region.

Investment grade sovereigns like Abu Dhabi , Kuwait, Qatar

and Saudi Arabia have stable outlook on their ratings from all

three major rating agencies. Abu Dhabi and Kuwait have

indeed maintained their AA ratings since 2015, even though

GCC economies faced the most challenging times due to

lower oil price. The ratings of these sovereigns underpin the

fact that they have substantial reserves and a range of tools

available to them to deal with such a situation including

regional geopolitical threats.

Oman credit spreads widened significantly in the month of

December, following a rating downgraded by Fitch to BB+

from BBB-. Oman now runs a risk of losing its only

investment grade rating from Moody’s (Baa3/Negating) as

the sovereign struggle to consolidate its fiscal position.

Abu Dhabi

Austria

Bahrain

Belgium

Brazil

China

Dubai*

Egypt

France Hong Kong

India

Indonesia

Italy

Japan

Kuwait

Malaysia

Mexico

Oman

Poland

Qatar

Russia

Saudi Arabia

South Africa

South Korea

Spain

Turkey

UK

Chile

Colombia

Kazakhstan

Romania

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

340

360

380

400

CD

S (

bp

s)

AA+ AA AA- A+ A A- BBB BBB- BBB+ BB+ BB BB- B+ B *Composite rating

17

GCC sovereign curves

5.25

5.75

6.25

6.75

7.25

7.75

8.25

OMAN 4.125 01/23

BHRAIN 7.5 09/47

BHRAIN 6.125 08/23

OMAN 6.75 01/48

3.10

3.30

3.50

3.70

3.90

4.10

4.30

4.50

4.70

4.90

5.10

5.30

5Y 10Y 30Y~5-year bonds ~10-year bonds ~30-year bonds

KUWIB 2.75 03/22

KUWIB 3.5 03/27

ADGB 2.5 10/22

QATAR 3.875 4/23

QATAR 5.103 4/48

KSA 2.875 3/23

KSA 5 4/49

ADGB 4.125 10/47

DUGB 5.25 1/43

DUGB 6.45 5/22 S

Notes: Curves as on 9-Jan-2019; “S” in the ticker indicates that the bond is Islamic (sukuk); Source: Bloomberg/FAB

18

GCC credit quality at a glance

Un

ited

Ara

b E

mir

ate

s (

UA

E)

Em

irate

of

Ab

u D

hab

i

Ku

wait

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r

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Em

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Du

bai*

Su

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of

Om

an

Kin

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Bah

rain

2

3

4

5

6

7

8

9

10

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Wa

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Ab

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1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

0 1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435363738394041

Co

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IsD

B

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UN

B

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Ban

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In

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KF

H

Al-

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AD

CB

AD

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QIIB

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G

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Bara

ka B

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kin

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rou

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B

BB

K

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H

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60

Co

mp

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e R

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AA

AA-

A+

A

A-

BBB+

BBB

BBB-

BB+

BB

BB-

B+

AA+

B

GCC Sovereigns GCC Corporates

AA+

AA

AA-

A+

A

A-

BBB+

BBB

BBB-

BB+

BB

BB-

B+

GCC Financials

AA+

AA

AA-

A+

A

A-

BBB+

BBB

BBB-

BB+

BB

AAA

B+

BB-

B

Note: The ratings mentioned here are composite credit rating for each issuer. Please see appendix for the methodology of calculating composite credit rating; * Dubai is not rated by any rating agency and we

have assigned a proxy rating of ‘BBB+’ based on its fundamentals with a relative comparison to DEWA (BBB+) and Emirate of Sharjah (BBB+) & ; Source: Bloomberg/FAB

B

19

GCC spread performance summary

Top 10 / bottom 10 bond/sukuk performers (z-spread, bps) in each category from 29th Dec 2017 to 31st Dec 2018

-150-100-50050100150200

+200

+197

+185

+182

+166

+161

+158

+149

+143

+77

-31

-32

-34

-38

-44

-57

-68

-79

-87

-89

Sovereigns

QATAR 6.55 19

BHRAIN 6.875 25 (S) *5/4/18

ADGB 6.75 19

QATAR 4.5 28 *23/4/18

QATAR 3.875 23 *23/4/18

BHRAIN 7.5 47

QATAR 5.103 48 *23/4/18

QATAR 5.25 20

QATAR 3.241 23 (S)

QATAR 9.75 30

OMANGS 5.932 25 (S) *31/10/18

OMAN 6.75 48 *17/1/18

OMAN 6.5 47

OMAN 4.75 26

OMAN 5.625 28 *17/1/18

OMAN 3.625 21

OMAN 5.375 27

OMANGS 4.397 24 (S)

OMAN 3.875 22

OMAN 4.125 23 *17/1/18

-150-100-50050100150

+133

+120

+80

+75

+73

+73

+65

+64

+57

+55

-7

-10

-10

-13

-21

-21

-47

-82

-94

-150

Financials

ADIBUH 7.125 (S) Jr Sub PERP Nxt C: 20/9/23 *20/9/18

FABUH 3.25 19

BGBKKK 7.25 Jr Sub PERP Nxt C: 30/9/19

DIBUH 6.75 (S) Jr Sub PERP Nxt C: 20/1/21

ALHILA 4.375 23 (S) *19/9/18

EBIUH 6.375 Jr Sub PERP Nxt C: 17/9/20

NOORBK 6.25 (S) Jr Sub PERP Nxt C: 1/6/21

QIBKQD 2.754 20 (S)

ALKHAL 4.75 23 *9/10/18

QIBKQD 3.251 22 (S)

DIBUH 6.25 (S) Jr Sub PERP Nxt C: 20/3/19

DIBUH 3.664 22 (S)

DIBUH 3.625 23 (S) *6/2/18

BKDBOM 6.85 Jr Sub PERP Nxt C: 27/5/20

ADCBUH 4.5 23 Sub

BOSUH 3.374 20

GULINT 3.5 22

BOSUH 4.23 22

NBOBOM 3.125 19

BKMBOM 3.75 21

-400-300-200-1000100200300400

+368

+298

+219

+218

+199

+179

+158

+142

+134

+128

-26

-30

-33

-35

-36

-40

-41

-46

-64

-294

Corporates

DARALA 6.5 19 (S)

OILGAS 7.625 24 *7/11/18

MUBAUH 4.5 28 *7/11/18

NMCHSU 5.95 23 (S) *21/11/18

JAFZSK 7 19 (S)

OILGAS 8.375 28 *7/11/18

TABRED 5.5 25 (S) *31/10/18

GENHLD 4.76 25 (S) *5/12/18

BATELC 4.25 20

MUBAUH 7.625 19

KWIPKK 9.375 20

MAFUAE 6.375 Jr Sub PERP Nxt C: 20/3/26 *20/3/18

KWIPKK 4.5 27

DARALA 6.875 23 (S) *21/3/18

MAZOON 5.2 27 (S)

MAFUAE 5.5 Jr Sub PERP Nxt C: 7/9/22

OMGRID 3.958 25

OMGRID 5.196 27

DAMACR 6.625 23 (S) *18/4/18

DAMACR 6.25 22 (S)

Notes: (1) We have used a list of GCC public debt which are quoted by FAB trading desk; (2) (S) in the ticker indicates Sukuk; (3) All bonds/sukuks are $ denominated unless any other currency is

highlighted in the ticker. (3) All bonds/sukuks are senior unsecured debt unless an abbreviation for the debt type is highlighted in the ticker – e.g. – “Unsec” = Unsecured debt junior to Senior

Unsecured debt; ; “Sub” = Subordinated; “Sr Sub” = Senior Subordinated; “Jr Sub” = Junior Subordinated; “Perp” = Perpetual; Callable, Puttable and Sinkable highlighted as “Call”, “Puta”, & “Sink”

respectively; (4) * highlights spread change from the pricing date of the bond as it was issued in 2018; Source: FAB/Bloomberg

20

GCC’s major primary deals in 2018 and their performance

Secondary market performance since issue (change in z-spread and cash price since issue till 31-Dec-18)

Notes: (S) in the ticker indicates Sukuk; All bonds/sukuks are US$ senior unsecured debt of the issuer unless an abbreviation for the debt type is highlighted – e.g. – “Unsec” =

Unsecured debt; “Sub” = Subordinated; “Sr Sub” = Senior Subordinated; “Jr Sub” = Junior Subordinated; “Perp” = Perpetual; Callable, Puttable and Sinkable highlighted as

“Call”, “Puta”, & “Sink” respectively; Source: Bloomberg/FAB

-100 0 100 200 300

+84

-13

+4

-57

-68

-38

+298

+13

-8

-7

+3

-87

+20

+54

+158

+134

+4

+51

+12

+24

+20

+64

+143

+161

+200

-20 -16 -12 -8 -4 0 4 8

-5.7

+0.7

-0.4

+2.2

+5.0

+5.2

-10.3

-0.6

+0.3

+0.3

-1.2

+4.6

-0.8

-2.2

-5.5

-7.5

-0.2

-1.9

-1.2

-1.0

-0.8

-2.4

-15.8

-10.8

-7.1

Cash price change Z-spread change (in bps)

OMAN 4.125 23 (10/Jan)

OMAN 5.625 28 (10/Jan)

OMAN 6.75 48 (10/Jan)

DIBUH 3.625 23 (S) (30/Jan)

FABUH 3.625 23 (S) (26/Feb)

UNBUH 4 23 (6/Mar)

SHARSK 4.226 28 (S) (6/Mar)

BKMBOM 4.875 23 (7/Mar)

ISDB 3.1 23 (S) (8/Mar)

MAFUAE 6.375 Jr Sub PERP Nxt C: 3/20/2026 (13/Mar)

DARALA 6.875 23 (S) (14/Mar)

EMIRAT 4.5 28 (S) SINK (15/Mar)

ADCBUH 4 23 (22/Mar)

BHRAIN 6.875 25 (S) (28/Mar)

KSA 5 49 (10/Apr)

KSA 4.5 30 (10/Apr)

KSA 4 25 (10/Apr)

SIB 4.231 23 (S) (11/Apr)

DAMACR 6.625 23 (S) (11/Apr)

QATAR 5.103 48 (12/Apr)

QATAR 4.5 28 (12/Apr)

QATAR 3.875 23 (12/Apr)

TAQAUH 4.375 25 (16/Apr)

TAQAUH 4.875 30 (16/Apr)

OTELOM 6.625 28 Sec (17/Apr)

Bond/Sukuk

(Pricing date in dd/mm)

-150 -75 0 75 150

-33

-41

-46

-64

-36

-35

+77

-6

-14

-10

-11

+8

+0

-25

+7

+20

+28

+54

-21

-150

-3

-12

-37

+13

+79

-8 -6 -4 -2 0 2 4 6

+1.7

+1.6

+3.2

+2.9

+2.1

+1.8

-4.3

+0.1

+0.6

+0.3

+0.5

-0.9

-0.1

+1.0

-0.4

-1.8

-4.5

-2.3

+0.8

+6.1

-0.1

+0.3

+1.4

-0.6

-3.3

Cash price change Z-spread change (in bps) Bond/Sukuk

(Pricing date in dd/mm)

OTELOM 5.625 23 Sec (17/Apr)

NOORBK 4.471 23 (S) (17/Apr)

COMQAT 5 23 (17/May)

APICOR 4.125 23 (11/Sep)

KSA 4.303 29 (S) (12/Sep)

ADIBUH 7.125 (S) Jr Sub PERP

Nxt C: 9/20/2023 (12/Sep)

ALHILA 4.375 23 (S) (12/Sep)

NBOBOM 5.625 23 (18/Sep)

DPWDU 5.625 48 (18/Sep)

DPWDU 4.848 28 (S) (18/Sep)

ALAHKW 7.25 Jr Sub PERP Nxt C: 9/26/2023 (19/Sep)

ISDB 3.389 23 (S) (19/Sep)

SECO 4.222 24 (S) (20/Sep)

SECO 4.723 28 (S) (20/Sep)

ALDAR 4.75 25 (S) (24/Sep)

ALKHAL 4.75 23 (2/Oct)

SABIC 4.5 28 (2/Oct)

SABIC 4 23 (2/Oct)

OMANGS 5.932 25 (S) (24/Oct)

TABRED 5.5 25 (S) (24/Oct)

OILGAS 8.375 28 (31/Oct)

OILGAS 7.625 24 (31/Oct)

MUBAUH 4.5 28 (31/Oct)

NMCHSU 5.95 23 (S) (14/Nov)

GENHLD 4.76 25 (S) (27/Nov)

21

Sovereigns spread performance – Abu Dhabi

Source: FAB/Bloomberg

AD

GB

6.7

5 1

9

AD

WA

3.9

25

20

SIN

K

AD

GB

2.1

25

21

AD

GB

2.5

22

AD

GB

3.1

25

26

AD

GB

3.1

25

27

AD

GB

4.1

25

47

-78.8

+29 +2

unch

+4 +6

-10

-75.0

-50.0

-25.0

0.0

25.0

50.0

75.0

100.0

125.0

150.0

175.0

z-s

pre

ad

(b

ps)

Maturity Long

term

Short

term 31-Dec-18 29-Dec-17 Curve on 29-Dec-17 Curve on 31-Dec-18

22

Sovereigns spread performance – Kuwait

Source: FAB/Bloomberg

KU

WIB

2.7

5 2

2

KU

WIB

3.5

27

+11

-3

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

z-s

pre

ad

(b

ps)

Maturity Long

term

Short


23

Sovereigns spread performance – Qatar

QA

TA

R 6

.55

19

QA

TA

R 5

.25

20

QA

TD

IA 5

20

QA

TA

R 2

.37

5 2

1

QA

TA

R 4

.5 2

2

QA

TA

R 3

.24

1 2

3 (

S)

QA

TA

R 3

.87

5 2

3 *

23

/4/1

8

QA

TA

R 3

.25

26

QA

TA

R 4

.5 2

8

*2

3/4

/18

QA

TA

R 9

.75

30

QA

TA

R 6

.4 4

0

QA

TA

R 5

.75

42

QA

TA

R 4

.62

5 4

6

QA

TA

R 5

.10

3 4

8 *

23

/4/1

8

-89

-34

+6

-5

-4 -32

-66

-16

-76 -31

-18 -20 -22

-44

-50.0

-25.0

0.0

25.0

50.0

75.0

100.0

125.0

150.0

175.0

200.0

225.0

250.0

z-s

pre

ad

(b

ps)

Maturity

31-Dec-18 29-Dec-17

Long

term

Short

term

Notes: * Highlights spread change from the pricing date of the bond as it was issued in 2018; If "Sukuk", the ticker contains "(S)" next to the maturity year; ** Included QATDIA in Qatar Sov curve as

it is explicitly Govt guaranteed; Source: FAB/Bloomberg

Curve on 29-Dec-17 Curve on 31-Dec-18

24

Sovereigns spread performance – Saudi Arabia

KSA

2.3

75

21

KSA

2.8

94

22

(S)

KSA

2.8

75

23

KSA

4 2

5

*1

7/4

/18

KSA

3.2

5 2

6

KSA

3.6

28

27

(S)

KSA

3.6

25

28

KSA

4.3

03

29

(S)

*

19

/9/1

8

KSA

4.5

30

*

17

/4/1

8

KSA

4.5

46

KSA

4.6

25

47

KSA

5 4

9

*1

7/4

/18

+27 +31

+33

-17

+42 +33

+30

-10

-14

+35 +42

-3

50.0

70.0

90.0

110.0

130.0

150.0

170.0

190.0

210.0

230.0

250.0

z-s

pre

ad

(b

ps)

Maturity

Notes: * Highlights spread change from the pricing date of the bond as it was issued in 2018; If "Sukuk", the ticker contains "(S)" next to the maturity year; Source: FAB/Bloomberg

Long

term

Short


25

Sovereigns spread performance – Dubai

DU

GB

7.7

5 2

0

DU

GB

5.5

91

21

P

UT

A

DU

GB

6.4

5 2

2 (

S)

DU

GB

3.8

75

23

(S

)

DU

GB

5 2

9 (

S)

DU

GB

5.2

5 4

3

-1

+41 +41

+32

-2

-17

25.0

50.0

75.0

100.0

125.0

150.0

175.0

200.0

225.0

250.0

275.0

z-s

pre

ad

(b

ps)

Maturity

31-Dec-18 29-Dec-17

Long

term

Short

term

Notes: If "Sukuk" the ticker contains "(S)" next to the maturity year; Source: FAB/Bloomberg


26

Sovereigns spread performance – Sharjah

Notes: * Highlights spread change from the pricing date of the bond as it was issued in 2018; If "Sukuk" the ticker contains "(S)" next to the maturity year; Source: FAB/Bloomberg

SHA

RSK

3.8

39

21

(S)

SHA

RSK

3.7

64

24

(S)

SHA

RSK

4.2

26

28

(S)

*

14

/3/1

8

+29

+50

+4

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

160.0

170.0

180.0

z-s

pre

ad

(b

ps)

Maturity Long

term

Short


27

Sovereigns spread performance – Oman

OM

AN

3.6

25

21

OM

AN

3.8

75

22

OM

AN

4.1

25

23

*

17

/1/1

8

OM

AN

GS

4.3

97

24

(S)

OM

AN

GS

5.9

32

25

(S)

*

31

/10

/18

OM

AN

4.7

5 2

6

OM

AN

5.3

75

27

OM

AN

5.6

25

28

*

17

/1/1

8

OM

AN

6.5

47

OM

AN

6.7

5 4

8

*1

7/1

/18

+166 +197

+190

+185

+68

+158 +182

+154

-20

100.0

125.0

150.0

175.0

200.0

225.0

250.0

275.0

300.0

325.0

350.0

375.0

400.0

425.0

450.0

475.0

500.0

525.0

550.0

575.0

z-s

pre

ad

(b

ps)

Maturity

31-Dec-18 29-Dec-17

Long

term

Short

term



28

Sovereigns spread performance – Bahrain

BH

RA

IN 5

.5 2

0

BH

RA

IN 5

.87

5 2

1

BH

RA

IN 6

.12

5 2

2

BH

RA

IN 6

.12

5 2

3

BH

RA

IN 5

.62

4 2

4 (

S)

BH

RA

IN 5

.25

25

(S)

BH

RA

IN 6

.87

5 2

5 (

S)

*5

/4/1

8

BH

RA

IN 6

.87

5 2

5 (

S) *

5/4

/18

BH

RA

IN 7

28

BH

RA

IN 6

.75

29

BH

RA

IN 6

44

BH

RA

IN 7

.5 4

7

+3

+8

+9

-9 +30 +43

-96

-17

-13 -24

-30

-44

175.0

200.0

225.0

250.0

275.0

300.0

325.0

350.0

375.0

400.0

425.0

450.0

475.0

500.0

525.0

550.0

z-s

pre

ad

(b

ps)

Maturity

31-Dec-18 29-Dec-17

Long

term

Short

term



29

As mentioned in above slides, we have used “composite ratings” for the credit quality analysis – i.e. the average of the

ratings assigned by three leading rating agencies Moody’s, S&P and Fitch – in order to provide a more representative

view of the credit strength of each bank.

The composite rating is calculated as follows:

• A score is assigned to the rating from each rating agency: AAA or equivalent being the best with a score of “1”,

followed by AA+ or equivalent as “2”, AA or equivalent as “3”, AA- or equivalent as “4” and so on;

• For example FAB is rated Aa3/AA-/AA- by Moody’s/S&P/Fitch. So the scores are 4/4/4;

• Hence the average of the scores is “4” which indicates a composite rating of “AA-” for FAB;

• In case the average score is not an absolute number – e.g. 4.33 (average of 4, 5, & 4 ) – the final score is derived by

rounding off the average score to the nearest whole number. In this case “4”.


Appendix

Thank You

Market Insights & Strategy, FAB Global Markets

Please click here to view our recent publications

on MENA and Global Markets

Contact:

Chavan Bhogaita

Managing Director, Head of Market Insights

& Strategy, Global Markets

First Abu Dhabi Bank

Tel: +971 2 6110 127

[email protected]

Rakesh Sahu

Director, Market Insights & Strategy,

Global Markets

First Abu Dhabi Bank

Tel: +91 22 333 11138

[email protected]

https://www.nbad.com/en-ns/insight-and-features/mena-and-global-markets.html



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