NBK Capital sponsors GBSA's Kuwait debt capital markets conference

NBK Capital sponsors GBSA's Kuwait debt capital markets conference

KUWAIT: Watani Investment Company (NBK Capital), in partnership with the Gulf Bonds and Sukuk Association (GBSA), held the fourth annual Kuwait Debt Capital Market Conference, which was attended by a number of government and private sector representatives that were invited to participate in the conference.

On this occasion, Rani Selwanes, Managing Director and Head of Investment Banking at NBK Capital, said, "We are very proud of our partnership with GBSA and of our sponsorship for this year's conference. At NBK Capital, we have consistently worked towards contributing to the development of Kuwait's debt capital market to create an encouraging environment for both issuers and investors to participate in as diverse and robust a market as possible.

Collaborating this year with GBSA for its annual Kuwait conference is one of the multiple ways that we believe furthers this goal."

Selwanes noted, "Since 2009, the GCC's debt capital markets have generated nearly $530 billion in debt issuances, more than half of which has been issued over the past three years. The significant growth in issuance volumes since 2016 has been driven primarily by sovereign issuances from GCC governments, which have accounted for more than 65 percent of total issuances during this period."

He further explained, "The average annual issuance volume in the GCC has more than doubled over the past three years to $81 billion, compared with its $36 billion historical average between 2009 and 2015; and that with this increase, the region has leaped into a new level of market maturity rivaling that of its emerging market peers.

Selwanes confirmed that Kuwait's debt capital market activity has, for the most part, mirrored that of the region. With more than $24 billion worth of issuances over the past 10 years, 70 percent has been generated since 2016. He then added, "Much like the three-year trend observed by its GCC counterparts, 47 percent of the $17 billion issued out of Kuwait, is attributed to the state's $8 billion debut sovereign issuance in 2017." However, he further noted, "total Kuwaiti debt issuances during 2018 declined by more than 80 percent from the year prior to a mere $1.3 billion."

Selwanes attributed the decline in issuance volumes to several factors including uncertainty surrounding interest rates, low lending rates from alternative sources of funding and modest growth in the Kuwaiti economy. NBK Capital's Managing Director further clarified, stating, "Despite the decline in issuance volumes last year, we should continue to highlight the multiple benefits of debt instruments to prospective issuers, including their ability to diversify the sources of funding for potential issuers and their flexible terms and conditions."

Selwanes also spoke of the importance to support local and regional Kuwaiti government issuances to further develop Kuwait's sovereign yield curve, an important benchmark that guides the pricing of issuances by Kuwaiti companies and institutions. He explained that "With the prospects of recurring sovereign issuances by the State becoming lukewarm, perhaps it is time to consider taking prominent Kuwaiti government related entities to market as an alternative to a purely sovereign yield curve".

Credit ratings

Later on during the conference, Zaid Al-Sager, Director - Investment Banking participated in a panel discussion on the state of Kuwait's debt capital markets, along with a group of other leading professionals in the local debt capital market. The panel collectively discussed the need for the further diversification of issuers in the local debt capital market.

Al-Sager further noted, "There has been an increasing interest amongst both government related entities and prominent Kuwaiti conglomerates to obtain credit ratings as a first step towards their potential participation in the debt capital markets, which is a positive indicator for the potential to further diversify and grow Kuwait's debt capital markets".

Al-Sager continued, "2019 may prove to be an opportunistic window for prospective issuers to obtain debt at historically low borrowing rates, given the Federal Open Market Committee's revision of its monetary policy."

Global economic slowdown

During the Kuwait Debt Capital Markets Conference, Dr. Saade Chami, Group Chief Economist at National Bank of Kuwait highlighted the synchronized slowdown in major economies and expected the global growth rate, which was lowered by the International Monetary Fund (IMF) to 3.5 percent in 2019 back in October, to be revised downward again as risks have tilted to the downside.

Dr Chami added that GCC region would likely be insulated from the global slowdown due to its limited integration with the rest of the world in terms of trade. The impact will come mainly through oil demand and oil prices-which he projected to hover around current levels-and interest rates which are expected to remain unchanged given the Fed pause on rates hikes.

"GCC growth expected at around 2 percent in 2019 driven mainly by public spending while non-oil activity seen at 3.0 percent. Oil sector growth would be about flat due to OPEC's decision on production cuts" he pointed.

He mentioned, "Fiscal deficits are set to widen in most GCC countries due to elevated spending, as the need to clamp down on deficits has become less urgent with the rise in oil prices from their lows in 2014-15."

He also pointed out that there is a greater need for debt issuance in 2019 due to moderate oil prices, more relaxed fiscal policies, and large part of public debt maturing.

Finally, Dr Chami stressed that GCC sovereign debt issuance could reach about $50-60 billion this year but this is subject to uncertainty related to oil prices and budgets implementation, adding that Saudi is expected be the largest borrower in 2019 with an estimated issuance of about USD 30 billion.

The conference offered a variety of presentations; Standard and Poor's credit rating agency presented and discussed the process and criteria for obtaining a credit rating. Acreditus, a regional advisory firm, concluded the conference with a presentation on the potential applications of Blockchain technology for sukuk issuances.