Gulf bond rally continues as issuers raise $7.5 billion in a week

Gulf debt markets extended their rebound in late June as regional borrowers returned with billions of dollars of bond and sukuk sales, Fortune reported. The rally matters for Gulf governments and companies seeking funding after geopolitical tensions had interrupted issuance earlier in the year.

In the week to June 26, QatarEnergy, Avilease, Emirates NBD, FAB, Dukhan and Burjeel issued a combined $7.5 billion of debt, according to Fortune. The deals showed that primary markets had resumed activity after a pause linked to the U.S.-Iran war.

Burjeel Holdings, the UAE healthcare group listed on the Abu Dhabi Securities Exchange, completed a $500 million debut sukuk, Fortune reported. Demand exceeded the deal size by more than three times, with the order book reaching $1.6 billion.

According to Fortune, international investors received 61% of Burjeel’s allocations. Buyers from the U.K. accounted for 34%, offshore U.S. accounts took 24%, and Gulf investors received the remaining 39%.

The Burjeel sale was the first tranche of a planned $1.5 billion sukuk program, Fortune reported. The program had been put on hold after the U.S.-Iran war began in February.

Fortune said Gulf primary bond issuance stopped abruptly after the conflict began, as yields on corporate and sovereign debt rose with the increase in geopolitical tension. Markets then recovered after an April 8 ceasefire reduced the risk premium investors were demanding for Gulf fixed-income assets.

Fitch Ratings said spreads between GCC investment-grade debt and U.S. Treasuries have returned to pre-war levels. According to Fortune, that narrowing reflected investor confidence in Gulf states’ strong government reserves and the view that the conflict would not cause lasting damage to issuers’ finances.

Both sovereign and corporate borrowers have raised billions of dollars in conventional bonds and sukuk in recent months, Fortune reported. Five of the six Gulf countries, excluding Bahrain, are rated investment grade by the three main credit rating agencies, according to Fortune, which said those ratings make it easier for borrowers to obtain funding when needed.

The recovery has not been even across the market. Fortune reported that spreads on speculative-grade GCC sukuk remain elevated, showing that investors still want higher compensation for lending to riskier borrowers.

Renewed tension in recent days has also pointed to the region’s exposure to further market swings, Fortune reported. Fitch said the future path of GCC fixed-income yields remains uncertain.

This story draws on original reporting from Fortune.