Kuwait Financial Centre Markaz Fixed Income Research Survey H1 214 Highlights Notes Before Reading This Report: * GCC: Gulf Cooperation Council * GCC Aggregate Bonds and Sukuk market includes: * GCC Central Banks Local Issuances (CBLIs): Fixed Income securities, including Treasury bills, Notes and Bonds issued by GCC central banks, mostly to regulate the levels of domestic liquidity. * GCC Sovereign Issuances: Bonds and Sukuk issued by GCC governments in local or foreign currencies for financing purposes. Markaz Research is available on Bloomberg Type MRKZ <Go> * GCC Corporate Bonds: Bonds and Sukuk issued by GCC corporate entities including Financial Institutions (FIs) and Government Related Entities (GREs). * The GCC Bonds and Sukuk market includes GCC Sovereign Issuances and GCC Corporate Issuances and does not include CBLIs. * A number of resources were utilized in the creation of this report; notable sources are Bloomberg, Zawya, GCC central banks websites, rating agencies reports and Offering Memorandums. * Every effort has been made to include and quote the majority of data that is accessible to Markaz. * All currencies were converted into US dollars for easy comparison. GCC Aggregate Bonds and Sukuk Market H1 214 * GCC Aggregate Bonds and Sukuk Market includes GCC Central Banks Local Issuances, GCC Sovereign Issuances and GCC Corporate Issuances. Authors: Rasha A. Othman VP Corporate Finance +965 2224 8 Ext.: 1113 rothman@markaz.com Aliya Sattar Faisal, CFA Senior Analyst +965 2224 8 Ext.: 1114 afaisal@markaz.com Kuwait Financial Centre Markaz P.O. Box 23444, Safat 1395, Kuwait Tel: +965 2224 8 Fax: +965 2242 5828 markaz.com The total value of new issuances in the Aggregate GCC Bonds and Sukuk market, during the first half of 214 ( H1 214 ) was USD56.71 billion, a 24.71% increase in comparison to the respective period of 213 ( H1 213 ). The growth can be attributed primarily to a 5.14% increase in CBLI issuances while there was a modest increase of 2.9% in corporate and sovereign issuance. 2,822 25,518 43,627 48,243 Source: Bloomberg, Markaz Analysis GCC Aggregate Bonds and Sukuk Market New Issuance 23,53 81,151 62,744 84,112 85,361 97,73 56,71 24 25 26 27 28 29 21 211 212 213 1H 214
Amount () Amount Raised in Although a larger total value was raised during H1 214, this was achieved through a lower number of issuances than those issued during H1 213. The number of issuances in H1 214 stood at 176 as compared to 19 issues in H1 213. GCC Aggregate Bonds and Sukuk Market (H1 213 vs H1 214) 6, 5, 195. 19. 4, 3, 2, 1, 185. 18. 175. 17. Number of Issues H1 213 H1 214 165. Source: Bloomberg, Markaz Analysis June was the most active month in terms of both the amount raised and the number of issuances. A total of USD15.55 billion was raised during the month through 44 issues. 18, GCC Aggregate Bonds and Sukuk Market New Issuance 214 5 16, 45 14, 4 12, 1, 8, 6, 4, 35 3 25 2 15 1 2, 5 Jan Feb Mar Apr May Jun Total Amount Raised Source: Bloomberg, Markaz Analysis GCC Central Banks Local Issuances H1 214 1 GCC Central Banks Local Issuances ( CBLIs ) are the fixed income securities including Treasury bills, notes, bonds and sukuk denominated in local currencies and issued by GCC central banks primarily to regulate the level of domestic liquidity. During H1 214, a total of USD32.14 billion was raised through CBLIs from the 1 The only publically and regularly available information of such issuances is from the Central Bank of Bahrain, the Central Bank of Kuwait, the Central Bank of Oman, and the Central Bank of Qatar. Kuwait Financial Centre Markaz 2
Amount raised (USD mn) Central Bank of Bahrain ( CBB ), the Central Bank of Kuwait ( CBK ), the Central Bank of Oman ( CBO ), and the Central Bank of Qatar ( CBQ ). This represents a substantial increase of 5.14% from H1 213, mainly due to a significant increase of 136.57% in value of issuances by CBQ. The total number of issuances also increased by 17.24% from 87 issuances in H1 213 to 12 issuances in H1 214. Of the total value issued by GCC Central Banks, 12.18% of the amount was raised through 14 sukuk issuances in H1 214 as compared to 6.56% raised through 16 sukuk in H1 213. GCC Central Bank Local Issuances 291H214 6, 5, 4, 3, 2, 1, 198 169 2,961 155 139 1,232 1,633 12 3,915 668 79 767 15,61 26,522 4,491 38,617 48,61 28,222 29 21 211 212 213 1H 214 2 175 15 125 1 75 5 25 Number of issues Conventional Sukuk Number of issues Source: Central Bank Websites, Markaz Analysis Among conventional issuances, CBK was the leading issuer, raising 47.1% of total value issued through conventional bonds by GCC central banks. CBQ raised USD 11.27 billion through conventional bonds in H1 214, more than double the amount raised in H1 213. CBB and CBQ remained the only issuers of Sukuk. CBB raised 22.8% of the total sukuk issuances, raising USD 891.1 million. CBQ dominated the sukuk issuance, raising USD3.2 billion by sukuk, an increase of 45.52% from its sukuk issuance during H1 213. GCC Central Banks Local Issuances Conventional Bonds (USD mn) GCC Central Banks Local Issuances Sukuk (USD mn) Bahrain 13.% Kuwait 47.1% Bahrain 22.8% Qatar 39.9% Qatar 77.2% Source: Central Bank Websites, Markaz Analysis Kuwait Financial Centre Markaz 3
Amount () Amount raised (USD mn) During H1 214 CBQ surpassed CBK as the top issuer, in contrast to the previous years, by issuing the largest amount amongst GCC central banks. CBQ raised USD14.29 billion through 25 issues, more than double the amount raised in H1 213 (USD6.4 billion raised through 2 issues). The CBK raised USD13.29 billion through 37 issues, an increase of 7.87% from USD12.32 billion raised through 34 issuances in H1 213. The CBB raised USD4.55 billion through 4 issuances, representing an increase of 6.64% from USD2.83 billion raised in H1 213 through 32 issuances. The CBO did not issue any bond or sukuk during H1 214 whereas it had raised USD 27.8 million through a single issuance in H1 213. GCC Central Banks Local Issuances USD mn 6, 5, 4, 3, 2, 1, 29 21 211 212 213 1H214 Kuwait Qatar Bahrain Oman The majority of CBLIs issued during H1 214 had less than one year maturity. The amount raised through 76 issuances stood at USD2.91 billion (65.7% of total value raised by CLBIs). During H1 214, CBQ added a 7 year bond to extend its yield curve. The 7 year conventional bond raised USD261 million (QAR95 million) and was issued for the first time in June. GCC Central Banks Local Issuances New issuance Maturity Profile H1 214 25, 8 2, 15, 1, 5, 7 6 5 4 3 2 1 <1 year 1 year 2 years 3 years 5 years 7 years 1 years Number of issues Source: Central Bank Websites, Markaz Analysis Kuwait Financial Centre Markaz 4
Amount Raised in H1 214* *The GCC Bonds and Sukuk market includes GCC Sovereign Issuances and GCC Corporate Issuances and does not include CBLIs. The total value of new issuances in the GCC Bonds and Sukuk market during H1 214 was 24.57 billion, a modest increase of 2.9% as compared to H1 213. However, the number of issuances declined by 28.15% from 13 in H1 213 to 74 in H1 214, indicating a higher average size of issuance for H1 214. The average size of issuance in H1 213 stood at USD239.33 million while that in H1 214 was USD332.6 million, representing an increase of 38.74% in average issuance size. New Issuance 64,774 45,112 46,142 28,333 3,1 35,554 33,389 24,572 5,467 11,881 12,39 24 25 26 27 28 29 21 211 212 213 1H214 (H1 213 vs H1 214) Average new issuance size 3, 12 1,2 1,8 25, 1 1, 2, 15, 1, 5, 8 6 4 2 Number of Issues 8 6 4 2 29 318 313 344 2 152 583 596 269 28 332 H1 213 H1 214 First Quarter of 214 (Q1 214) showed a lackluster performance in terms of the new issuance activity compared to Q4 213, as total value raised by new issuances declined by 66.76%. However, a recovery was seen in Q2 214 when a total of USD 19.15 billion was raised through 25 issues. Kuwait Financial Centre Markaz 5
Amount Raised () Amount Raised () 24, New Issuance 6. 2, 16, 12, 8, 4, 5. 4. 3. 2. 1. Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Breakdown by Country In H1 214, UAE entities remained the most active issuers raising USD14.71 billion or 59.88% of the total amount raised through 54 issuances. Saudi Arabian entities were a distant second, raising USD7.35 billion through 9 issuances. Qatari corporates raised USD1.18 billion through 5 issues and Bahraini corporates issued 3 bonds raising USD727.45 million. There was only one issue by a Kuwaiti entity, KIPCO, raising USD5 million whereas 2 bonds were issued by Omani entities raising USD87.6 million. New Issuance 1H214 16, 14, 12, 1, 8, 6, 4, 2, 6 5 4 3 2 1 UAE Saudi Arabia Qatar Bahrain Kuwait Oman Kuwait Financial Centre Markaz 6
GCC Bonds & Sukuk Market New Issuance 1% 64,774 35,554 33,639 45,112 46,142 24,572 8% 6% 4% 2% % 29 21 211 212 213 1H214 Other GCC Issuances UAE Issuances Sovereign Vs. Corporate Corporate issuances constituted 96.95% of the total amount raised in H1 214, with USD23.82 billion raised through 73 issuances. GCC sovereign issuances stood at USD75mn, with a single issuance by the Government of Dubai. UAE corporate entities remained the leading GCC corporate issuers, raising USD13.96 billion through 53 new issues, followed by Saudi Arabia corporate entities which raised USD7.35 billion through nine new issues. Qatari corporate entities raised a total of USD1.18 billion through five issues. Bahrain raised USD727.4 million through 3 issues and Kuwait raised USD5 through a single issue by KIPCO. Oman raised USD87.6 million through 2 issues. New Issuance 75 1,25 22,818 23,822 H1 213 H1 214 Corporate Sovereign Conventional Vs. Sukuk The total value raised by conventional new issuances (bonds) in the GCC market increased by 44.31% during H1 214 as compared to H1 213, reaching USD18.2 billion. Although conventional issues slightly surpassed sukuk issuances in H1 213, the difference was significantly higher in H1 214, with conventional issues comprising 73.34% of the total value. Sukuk issuance totaled USD6.55 billion in H1 214, representing 26.66%. Kuwait Financial Centre Markaz 7
New Issuance 11,58 6,55 12,489 18,22 H1 213 H1 214 Conventional Sukuk Breakdown by Sector During H1 214, the financial services sector dominated the market with 54 issuances raising a total of USD9.15 billion, representing 37.22% of the total amount. Communications sector followed with USD 4.81 billion raised through 5 issues, 4 of which were part of the debut issuance of Etisalat. Power & Utilities raised another 19.11% of the total value through 5 issues. New Issuance 1H214; USD24.5 Bn 19.1% 19.6% 8.5% 6.1% 4.7% 4.1% 1.3% Financial Communications Power & Utilities Real Estate Government Transport Conglomerate Basic Materials 37.2% Source: Bloomberg, Markaz Analysis Maturity Structure The maturity structure of new issuances in GCC Bonds and Sukuk market during H1 214 revealed that issuances with 1 year tenor surpassed the rest in terms of value, in contrast to the previous trend of 5 year tenor being the dominating category. Thirteen issues with 1 year maturity raised USD8.52 billion (34.68%) while 17 issues while 5 year maturity raised USD6.64 billion (27.3%). A total of USD5.8 billion was raised through issues with maturity longer than 1 years, including one perpetual issue by Al Hilal bank which raised USD 5 million and a 4 year issue by Saudi Electricity Company. Issuances with tenor of one year or less were the most frequently issued with 22 issuances raising USD887 million. Kuwait Financial Centre Markaz 8
Amount Raised ( ) Amount Raised () 9,. New Issuance Maturity Profile 1H214 25 6,. 3,. 2 15 1 5 Source: Bloomberg, Markaz Analysis Size During H1 214, the new issuances ranged in size from USD2.5 million to USD1.63 billion. Issuances with principal amounts greater than or equal to USD5 million but less than USD1. billion raised the largest amount of USD1.98 billion, representing 44.71% of the total value. Issuances with principal amounts equal to or greater than USD1. billion raised USD9.31 billion, 37.9% of the total value. The largest issues were the two Eurodenominated issues by Etisalat, raising USD1.63 billion each. 12, 1, 8, 6, 4, 2, Issue Size < USD1 Mn 214 New Issuances Size Breakdown 1H214 USD1 Mn Issue Size < USD2 Mn USD2 Mn Issue Size< USD5 Mn USD5 Mn Issue Size < USD1, Mn Issue Size USD1, Mn 4 35 3 25 2 15 1 5 Currency Structure Consistent with the past trends, USD denominated issuances dominated the GCC Bonds and Sukuk market during H1 214, raising USD14.6 billion (57.2% of the total amount raised). Saudi Riyal denominated issuances raised USD4.99 billion, followed by Euro denominated issuances which raised USD3.89 billion. Kuwait Financial Centre Markaz 9
Amount ( ) 16, 14, 12, 1, 8, 6, 4, 2, GCC Bonds and Sukuk New Issuance 1H214 Currency Structure USD SAR EUR AUD CHF OMR BHD CNY KWD AED JPY 5 4 3 2 1 Credit Rating During H1 214, 25 of the new GCC issues (33.8% of the total number of issues) were rated by either one or more of the following Rating Agencies: Standard & Poor s, Moody s, Fitch, and/or Capital Intelligence. The highest rating was assigned to USD75 million bond by Mubadala (MUBAUH 3 1/4 4/28/22) which was assigned AA, Aa3 and AA by S&P, Moody s and Fitch, respectively. Rating profile of New Issues 1H214 SubInvestment Grade 5.4% A+ 2.7% A 4.1% A 2.7% BBB+ 1.4% Not Rated 66.2% Investment Grade 28.4% AA 1.8% BBB 2.7% BBB AA 2.7% 1.4% Source 2 : Bloomberg, Markaz Analysis Listing During H1 214, a total of 41 GCC Bonds and Sukuk, with an aggregate value of USD19.62 billion, were listed on Exchanges. A total of 34 issuances totaling USD15.83 billion were listed on international exchanges versus 7 bonds with a total value of USD3.79 billion listed on regional exchanges. 2 For Chart Presentation S&P ratings have been used. If an entity is rated by other agencies and not S&P, the highest rating is considered and then corresponded to the S&P equivalent rating in the chart. Kuwait Financial Centre Markaz 1
Listing of New Issuances on Exchanges 1H214 Regional Exchange MUSCAT SECS MKT DUBAI FINL MKT SAUDI ARABIA NASDAQ DUBAI 88 (2 issues) 75 (1 issue) 1,21 (1 issue) 1,75 (3 issues) International Exchange SIX BERLIN LUXEMBOURG FRANKFURT LONDON DUBLIN 14 (1 issue) 235 (1 issue) 371 (1 issues) 1,377 (2 issues) 2,587 (6 issues) 11,125 (14 issues) Source: Bloomberg, Markaz Analysis GCC Bonds Market Amount Outstanding (as at 3 June 214) As of 3 June 214, the total amount outstanding in the GCC Bonds and Sukuk market was USD245.47 billion; out of which: Bonds and Sukuk issued by UAE entities represented the largest share with USD115.8 billion or 47.2% of the total amount outstanding. Sukuks represented 34.6% of the total amount outstanding. Corporate issuances represented 79.6% of the total amount outstanding with USD195.46 billion in total value. Sectorwise distribution indicates Financial Institutions issuances as the largest category representing 3.4% of total amount outstanding at USD74.59 billion. US Dollar denominated issuances comprised 7.29% of total amount outstanding, followed by Saudi Riyal denominated issuances with 15.4%. Amount Outstanding as at 3 June 214 by Maturity USD bn 42.6 21.98 24.16 23.1 24.93 24.33 21.49 19.46 13.63 17.22 8.1 4.65 214 215 216 217 218 219 22 221 222 223 224254 Perpetual Source: Bloomberg, Markaz Analysis Kuwait Financial Centre Markaz 11
Amount Issued () GCC Bonds and Sukuk Outstanding Geographical distribution As of 3 June 214 GCC Bonds and Sukuk Outstanding Sector distribution As of 3 June 214 Qatar 23.3% Saudi Arabia 22.6% UAE 47.2% Kuwait 1.9% Bahrain 4.5% Oman.6% Oil & Gas 14.1% Conglomera te 1.% Real Estate 6.9% Communica tions 4.9% Government 21.5% Power & Utilities 11.3% Transport 7.1% Financial Services 3.4% Industrial 2.% Others.8% Amount Outstanding As of 3 June 214 GCC Bonds and Sukuk Outstanding Issue Type As of 3 June 214 Sukuk 34.6% Sovereign 2.4% Conventi onal Bonds 65.4% Corporate 79.6% 2, 16, 12, GCC Bonds and Sukuk Outstanding Currency breakdown As of 3 June 214 USD245.47 Bn 172,532 8, 4, 36,927 584 89 1,244 5,596 5,93 2,413 12,72 7,489 BHD OMR KWD QAR AED SAR MYR EUR USD Others Kuwait Financial Centre Markaz 12
Market Performance The total return for S&P MENA Bond and Sukuk Index rose from 11.85 on 31 st December 213 to 17.7 on 3 th June 214, posting a gain of 5.13% during H1 214. The index recorded the lowest value around the beginning of the year on 2 nd January when it achieved a value of 11.82. The H1 high of 17.29 was recorded on 9 th June 214. The Index yield declined from 3.23% on 31 st December 213 to 2.82% on 3 th June 214, recording a percentage decrease of 12.56% over H1 214. S&P MENA Bond and Sukuk Index H1 214 Return S&P MENA Bond and Sukuk Index H1 214 Yield 18 17.7 3.5% 16 3.3% 14 3.1% 12 1 98 2.9% 2.7% 2.5% 2.82% Source: S&P Mena Bond & Sukuk Index, Bloomberg, Markaz Analysis Credit Default Swaps 3 During H1 214, 5Y CDS for all GCC sovereign debts tightened, representing a reduction in cost of insurance against their default. Bahrain 5Y CDS tightened by 31.35% to 164.765 basis points, followed by Qatar s 5Y CDS which shrunk by 11.2% to reach 52.5 basis points. Abu Dhabi s 5Y CDS declined by 1.% to reach 49.5 basis points while Dubai s 5Y CDS shrunk by 9.95% to reach 193.458 basis points. Saudi Arabia s 5Y CDS shrunk the least, by 6.54% to reach 51.45 basis points. GCC 5Year Sovereign Credit Default Swaps Spread Opening CDS Closing CDS Percent Change During Lowest CDS Highest CDS Average CDS Basis Points Basis Points H1 214 Basis Points Date Basis Points Date H1 214 Abu Dhabi 55. 49.5 1.% 4.5 2Jun14 57.5 31Jan14 5.614 Qatar 59. 52.5 11.2% 44.5 19Jun14 66.5 14Mar14 56.734 Dubai 214.833 193.458 9.95% 199.669 31Mar14 219.834 3Feb14 23.31 Saudi Arabia 55. 51.45 6.54% 39.785 13Jun14 64.5 1Mar14 52.753 Bahrain 24. 164.765 31.35% 145.75 19Jun14 239.965 1Jan14 185.52 Source: Bloomberg and Markaz Analysis 3 Credit Default Swaps ( CDS ) for Kuwait and Oman are not priced. Kuwait Financial Centre Markaz 13
Key GCC Corporate Bonds and Sukuk Issuances H1 214 Type Issuer Name Country Currency Subscription Month Tenor (Years) Maturity Date Issue Size (US$ mn) Margin Sector Rating S&P/M/F Conventional Emirates Telecom Corp ETISLT 1 3/4 6/18/21 UAE EUR June 7 18Jun21 1,637.28 1.75% Communications AA/Aa3/A+ Conventional Emirates Telecom Corp ETISLT 2 3/4 6/18/26 UAE EUR June 12 18Jun26 1,637.28 2.75% Communications AA/Aa3/A+ Sukuk Saudi Elec Global Sukuk SECO 4 4/8/24 Saudi Arabia USD April 1 8Apr24 1,5. 4.% Power & Utilities AA/A1/AA Conventional National Commercial Bank NCOMBK 2/25/24 Saudi Arabia SAR February 1 25Feb24 1,334.5 2.1% Financial // Conventional Saudi Electricity Co SECO 1/3/54 Saudi Arabia SAR January 4 3Jan54 1,21.5 1.65% Power & Utilities //AA Conventional Dp World Ltd DPWDU 1 3/4 6/19/24 UAE USD June 1 19Jun24 1,. 1.75% Transport // Sukuk Saudi Elec Global Sukuk SECO 5 1/2 4/8/44 Saudi Arabia USD April 3 8Apr44 1,. 5.5% Power & Utilities AA/A1/AA Sukuk Dubai Dof Sukuk Ltd DUGB 5 4/3/29 UAE USD April 15 3Apr29 75. 5.% Government // Sukuk EMG Sukuk Ltd EMAARM 4.564 6/18/24 UAE USD June 1 18Jun24 75. 4.56% Real Estate BBB/Baa2/ Conventional CBQ Finance Ltd COMQAT 2 7/8 6/24/19 Qatar USD June 5 24Jun19 75. 2.88% Financial A/A1/ Conventional Abu Dhabi National Energ TAQAUH 3 7/8 5/6/24 UAE USD May 1 6May24 75. 3.88% Power & Utilities A/A3/ Conventional ADCB Finance Cayman Ltd ADCBUH 3 3/4/19 UAE USD March 5 4Mar19 75. 3.% Financial A/NR/A+ Conventional MDCGMTN B.V. MUBAUH 3 1/4 4/28/22 UAE USD April 8 28Apr22 75. 3.25% Government AA/Aa3/AA Sukuk ICD Sukuk Co Ltd INVCOR 3.58 5/21/2 UAE USD May 6 21May2 7. 3.51% Financial // Sukuk Alpha Star Holding Ltd DAMACR 4.97 4/9/19 UAE USD April 5 9Apr19 65. 4.97% Real Estate BB// Conventional Saudi Telecom Co STCAB 6/9/24 Saudi Arabia SAR June 1 9Jun24 533.8 1.65% Communications // Conventional Saudi Investment Bank SIBCAB 6/5/24 Saudi Arabia SAR June 1 5Jun24 533.8 2.45% Financial // Conventional Banque Saudi Fransi BSFR 6/18/24 Saudi Arabia SAR June 1 18Jun24 533.8 2.35% Financial // Conventional Gulf Intl Bk Bsc/Riyadh GULINT 5/11/19 Bahrain SAR May 5 11May19 533.8 1.68% Financial // Sukuk AHB Tier 1 Sukuk Ltd ALHILA 5 1/2 6/29/49 UAE USD June Perpetual NA 5. 5.5% Financial // Conventional Emirates Telecom Corp ETISLT 2 3/8 6/18/19 UAE USD June 5 18Jun19 5. 2.38% Communications AA/Aa3/A+ Conventional Emirates Telecom Corp ETISLT 3 1/2 6/18/24 UAE USD June 1 18Jun24 5. 3.5% Communications AA/Aa3/A+ Conventional Rakfunding Cayman Ltd RAKBNK 3 1/4 6/24/19 UAE USD June 5 24Jun19 5. 3.25% Financial /Baa1/BBB+ Conventional MAF Global Securities MAFUAE 4 3/4 5/7/24 UAE USD May 1 7May24 5. 4.75% Conglomerate BBB//BBB Conventional Kuwait Projects Co KWIPKK 4.8 2/5/19 Kuwait USD February 5 5Feb19 5. 4.8% Conglomerate BBB/Baa3/ Kuwait Financial Centre Markaz 14
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