KUWAIT CITY, Jan 14:  The GCC aggregate bond market, which includes both conventional bonds (“bonds) and Shariah Compliant bonds (“sukuk”) decreased substantially to $18.1 billion in 2008, down by 62.4% compared with the amount raised in 2007, through 76 offerings.

The majority of issuances took place in the first half of the year (“H1 2008”) with 45 issues, representing 59.2% of the total number of issuances, and $13.1 billion, representing 72.7% of the aggregate volume. The month of March predominated in number of issuances as 16 issuances were placed, representing 21.1% of the total number of issuances while the month of May dominated in volume with $4.9 billion raised, representing 27.2% of the total volume. The second half of 2008 (“H2 2008”) witnessed less activity with a total of $4.9 billion raised, totaling 27.3% of the aggregate volume for the year.

Conventional vs Sukuk
Sukuk market share continued to grow in 2008 to reach 44.80% up from 40% in 2007 of total value issued by GCC bond market. Nonetheless, conventional issuances still raised a greater amount with $9.98 billion representing 55.2% of the total value raised, compared to $8.1 billion for sukuk. Total number of issuance, during 2008, was 42 sukuk issuances and 34 for conventional bond issuances.

Sovereign vs Corporate
Corporate issuances occupied the largest segment of the aggregate bond market in 2008, with $9.6 billion and a market share of 53.4%; however, in terms of activity, more sovereign issuances were raised, 48 sovereign issues representing 63.2% of the total number of offerings and led by Bahrain with 26 issuances, than corporate issuers, with 28 issues. Sovereign issuances were more active monthly than the corporate issuances; at least 1 sovereign issuance was placed every month during 2008 while no corporate issuances were placed in the months of January, November and December of 2008. A trend observed in the past 2 years is the market share dominance of the corporate issuances; however the growth of share of corporate issues slowed down in 2008, reaching 53.4%, compared to 60.0% share of total issuance in 2007 and 69.1% share in 2006.

Breakdown by Sector
Amongst the corporate issuers, Financial Services sector issued the largest number of bonds and sukuk and raised the highest amount during 2008, continuing with the trend that occurred between the period of 2003-2007, with 17 issues totaling $3.5 billion, representing 58.6% and 34.8% of the aggregate corporate bond market, respectively. Real Estate issuers raised $3.4 billion, constituting 34.2% of the total amount through a total of 7 issues. Power and Utilities sector issuances followed with offerings worth $1.3 billion in 2 issues,  followed by Oil and Gas sector issuances ($1.3 billion; 1 issue); Construction sector issuances ($267 million; 1 issue); and the Conglomerate sector issuances ($163 million; 1 issue).

Geographical Breakdown
Analyzing the geographical breakdown of the amount raised by both conventional bonds and sukuk issuances during 2008, it is noticed that the UAE garnered the majority share of amount raised, $8.8 billion, representing 48.9% of the aggregate amount through 21 issues, or 27.6% of the total number of issues, continuing with the trend that occurred in the year before. Subsequent by total amount raised was Kuwait with a total of $6.3 billion, representing 35.1% of the aggregate amount through 23 issues, representing 30.3% of the total issues. Next was Saudi Arabia with a total of $1.9 billion through 4 issues, representing 10.4% and 5.3% of the aggregate amount, respectively. In 2008, Bahrain was the most active in the issuances; a total of 26 new Bahraini issuances were placed and these were sovereign paper, representing 34.2% of all issuances, however, the Bahraini issuances raised a total of $716 million, a mere 4.0% of the total volume for the year. This was due to the small average issuance size of $27.5 million of the Bahraini issuances. Qatar raised the least amount with a total of $301 million, representing 1.7% of the aggregate amount, through 2 issues.

Maturity Structure
The aggregate bond issuances during 2008 have tenors ranging from 3 months treasury bills to 20-year bonds. During that period, issuances with a maturity of 1 year had the largest number of issues, with 21 issues for $6.2 billion. Medium-term financing was the second most common in 2008: 15 5-year tenors were placed raising a total of $6.0 billion. Issues  with less than 1 year maturity were the third most active in the issuance of bonds and sukuk, constituting 32.9% of all issuances, however they constituted a mere 2.0% by volume of financing raised. The $1.3 billion SABIC Sukuk III had the longest maturity of 20 years. This issue alone represents 7.4% of the total volume of all issuances. It is interesting to note that the average tenor for the 2008 issues decreased to 2.918 years from the 2007 average tenor of 3.239 years.

Size
The bond and sukuk issuances during 2008 have sizes ranging from $13 million to $1.3 billion. Continuing with the trend witnessed in 2007, the category of issues with a principal amount equal or less than $100 million had the largest number of issues during 2008 with 32 issues representing 42.1% of the aggregate bond market. Conversely, that category issued the lowest amount with a total value of $751 million, representing a mere 4.2% of all the issuances. The category that raised the highest amount, $7.9 billion, is the category of issues with a principal value of more than $200 million and equal to or less than $500 million. As well that category raised the second largest number of issues, with 26 issues. A notable change that occurred in 2008 was the significant decrease in the average issue size structure. The average issue size in 2008 is $237.6 million compared to the 2007 average issue size of $276 million.

Currency Structure
One trend that changed during 2008 in comparison to the 2003-2007 period is the currency structure of the conventional and sharia compliant issuances. Prior to 2008, the majority of issues, both in terms of volume and number, were USD denominated; however, in 2008, the majority of issues were denominated in GCC local currencies. The BHD denominated issuances were the most active with 25 issues, representing 32.9% of the total number of issues. However, the volume of financing through BHD denominated debt capital market, $366 million, represents a mere 2.0% of total amount raised. Subsequent in the number of issues is the AED denominated bonds and sukuk with 21 issues, representing 27.6% of the total. The AED denominated issuances raised the highest amount, $8.9 billion, constituting 49.5% of the total volume of all issuances. Next were the KWD denominated paper with 20 issues raising $5.8 billion; the SAR denominated issuances with 4 offerings raising $1.9 billion; the USD with 4 issues raising $728 million; and the MYR with 2 issues raising $309 million. The USD and MYR issuances were placed during the first half of 2008. During the second half of 2008, all the issuances were denominated in local GCC currencies: BHD, AED, KWD and SAR as appetite for USD denominated paper dried up.

Rating
Following the methodology used to assess the trend during 2003-2007, we mapped the GCC issues according to the S&P rating trends, since this agency rated the largest number of GCC issues. Of the total 76 issuances placed in 2008, a total of 19 issuances were rated, representing 25% of the all issues, 75% of the total number of aggregate issues were not rated.  A total of 10 sukuk, out of the 42 sukuk issued in 2008 were rated, representing 23.8% of the total; and  9 conventional bonds out of the 34 conventional bonds issued were rated, representing 26.5% of the total.  The highest rated product in 2008 was Saudi Arabia’s Saudi Basic Industries Corp, SABIC Sukuk III, which was rated A+.

Listing
Majority of the listed bond and Sukuk issues were listed on the Dubai International Financial Exchange, which on 18 November 2008 was rebranded to NASDAQ Dubai. Of the 2008 issuances, 7 were listed on regional stock exchange platforms; 6 sukuk listed on the NASDAQ Dubai and 1 sukuk listed on the Saudi Stock Exchange (Tadawul).